How do I send an email notification to a user who flagged another user using rules?
Solution: I created FLAG users, so that users can flag each other. 

RULES is set up as follows: New event, node new content. 

Elements (3 items) 
1st  : Fetch users who have flagged a user
Parameter: Flag: Flagname..., user: [node:author]
Provides variables: Users who flagged (usersflagged) Add another 

2nd : Add Loop 
Parameter: Lijst: [usersflagged]
List item: Current list item (list_item)

3rd : Send E-mail
Parameter: To: [list-item:mail], Subject: Sitename | [node:author]..., Message: Dear [list-item:name], ..., From: no-reply@sitename.com

Next step to discover is how to digest the mail. And I am wondering how much impact this rule will have on a busy site.