So, how does this work? I can't find much in the books aside from the concept that you can do things "normally", like cast spells and attack.
However, Pathfinder is not based in three dimensions. Can a flying character attack from above, and are they prone to effects based on cover like enemies and friends in melee with each other?
Also, flight seems pretty OP, given that a caster who flies can basically launch spells from the safety of the sky. Is this not as OP as it seems?
The rules are written w/ 2D in mind, but extrapolate just as well to 3D. Characters threaten squares...err...cubes 5 ft above and below themselves, including diagonals, if medium or small sized, just like they threaten in 2D terms.
If there is cover between your position and the target's cover bonuses apply as normal. Usually just "being in combat" does not confer a cover bonus, unless a creature is drectly in between you and the target (and for melee this onlyreally comes up if you have more than 5 ft reach, so I assume you're talking about with a reach weapon). So yes, you could fly above and attack someone in melee fighting another person on the ground. Just as if you were on the ground you could move around to a position w/o another creature in the way.
And you are mostly correct. Flight I don't want to say is OP in general. But, it is a game changer. Once flight starts cropping up, the game simply does not play the same ever again. And others either need to adapt or die. Fortunately, abilities and items like boots of flying are cheap and in a normal game, available, so eventually everyone who wants to will have a means of dealing with flight or flying themselves.
Flight CAN be overpowered/broken...
1) At the earliest levels when it's first emerging on the scene. At level 5, a wizard or archer flying is for many foes, an unbeatable opponent. It's just too early for the other side to adapt to it. It's basically like if you introduced machine guns to one army in the 1200s but not the other. In RL, tech evolves over time and starts out poor. In D&D, fly is just as good at level 5 as it is at level 20. Be wary of how flight is used at these delicate levels. If DM, counter PCs using flight by either having long encounter days that burn up their limited usage, or by using subterrainean, indoor, or otherwise confined spaces where you can't gain enough elevation with flight to become untouchable.
2) If the DM foolishly insists on a "low magic" or "low powered" campaign without understanding how game balance works. IE, no magic items but people can play wizards. So now even at level 15, the fighter has no way of flying, but the wizard can just cast it. You basically end up with the "initial introduction" stage, except painfully dragged out for the entire length of the game.
Certain effects, like flight, invisibility, teleportation, planar travel, raising the dead, and "phone the gods" divinations are just utter game changers. That's the nature of D&D/PF. After a few levels, it is simply NOT cut out to simulate medieval European adventurers. If you don't like that, you need to take very detailed, active steps and houserules to curb it from happening. Capping play to the low levels only being the start.
Very good points, and ones that had been concerns of mine. The issue here is that we have a witch in our party with the fly hex at level 5. The area we are going to next is indeed an old mine, though it does have a large, high ceilinged chamber.
Eiter way, my concern is, as you mentioned, the awkwardly low level this kind of utility is allowed. I'd rather not use cheese like "Suddenly there are more flying enemies flapping about!"
Best mundane solution is archers. Up in the air, she has no where to take cover, and is a visible target to anyone barring lighting issues. A wizard can solve this w/ wind wall and/or protection from arrows, a witch cannot.
As levels increase, it will get easier to keep the ability from being nuts. As with any powerful ability, it makes its biggest impact the level it comes on the scene.
EDIT: And there's nothing wrong with, even at high levels, throwing a few dodos at the party that have no means of dealing with flight. Never met a party that didn't enjoy the occasional curb stomp battle (in their favor, of course). Just as long as it's not ruining all/most of the combats.
Honestly, archers & Sling stoners are the great equalizers for everything.
Archers can hit just about anyone at range, unless you take cover. If you're in cover, you usually aren't attacking melee.
If you have a wizard who uses wind wall, a sling stone thrower can still hit him (with a miss chance). Also, flasks and alchemist bombs really ruin the day of the windwall wizard. Also, windwall doesn't work if you have a flying archer fly over the wizard and shoot straight down into his square. :)
Oh, and rock throwing giants are good against just about anything below level 12. :)