iPhone 4 space used but not allocated
I don't know the specifics of that particular App, but allocated space for 3rd party applications in the iPhone is restricted to themselves. That means that Application 1 cannot read Application 2 data. This security measure greatly limits the ways we have to share data among applications (and has made Dropbox very popular).

Given the above, it's very likely that the app Flash Drive uses its own space for storing the file(s) you upload (because it doesn't really have any other place to put it unless you jailbreak your device).

With that said, deleting the application from the phone and (just in case) fully restarting it, should recover the space. You can later re-copy the application to your phone by connecting it to iTunes again.

In order to delete it, make sure it's closed (i.e. not running), touch and hold the App's icon until it wiggles and touch the (X) on the corner of its icon. It will ask you if you want to delete the App and the Data (or warn you about it). Go ahead. Then shutdown your phone and restart it again.