Safe to use non-sticky pan with scratches?
Related question here.  A few years back, I spent a lot of time researching this issue over at Chowhound.  There have probably been hundreds of scientific studies on this stuff, so you can read about some of them I found over there.

I haven't looked at this in a few years, but my understanding is that most people tend to be concerned about products from off-gassing when Teflon is heated.  The concern about "flaking" Teflon pans seems to be that you might ingest small pieces of the coating.  However, that inert solid form of Teflon seems to be the least concerning from a health perspective.  If there is a potential safety problem with Teflon (and I'm not really convinced there is), it's something that might come from gases, not from ingestion of the solid form.  (Also, this is not unique to Teflon: keep in mind that inhalation of fumes -- which takes a substance directly to the bloodstream -- often results in much more significant exposure for many substances than ingestion.)

I suppose another element of concern comes from people who have heard that overheating a Teflon pan will cause danger.  They therefore assume if the pan is damaged during overheating that consumption of the remaining Teflon bits will be hazardous.  However, again, the main concern -- if there is one -- is in the potential gases, not the solid form.

The current scientific consensus seems to be that ingestion of small quantities of Teflon is not a hazard.  When it degrades or flakes, it remains very inert -- which means it won't react with just about anything, including your body or digestive system.

Bottom line: IF you're concerned about Teflon (for whatever reason), you shouldn't cook with it at all.  The hazard posed by flaking pans is NOT greater than intact ones.  The only greater concern is that your food will tend to stick more.