In context in ‘The Fall of the House of Usher’, the poem ‘The Haunted Palace’ is a conceit (an extended metaphor) in which the palace represents Roderick Usher’s head, and its occupants his thoughts. In the story, the poem is introduced by the narrator in a manner that recommends this interpretation to the reader:
The words of one of these rhapsodies I have easily remembered. I was, perhaps, the more forcibly impressed with it as he gave it, because, in the under or mystic current of its meaning, I fancied that I perceived, and for the first time, a full consciousness on the part of Usher of the tottering of his lofty reason upon her throne.
Edgar Allan Poe (1839). ‘The Fall of the House of Usher’. In Burton’s Gentleman’s Magazine, volume V, p. 148.
We are thus instructed to interpret the “ruler of the realm” sitting on the throne in the third stanza of the poem as representing Usher’s “reason”: that is, his capacity for rational thought, which is “tottering” as he succumbs to despair, horror, and insanity as described in the story.
Having identified the central metaphor (the monarch of the palace represents Usher’s reason), the other elements of the poem easily fall into place. The palace represents Usher’s head (it “reared its head”); the “ramparts plumed and pallid” represent his features (he has “lips somewhat thin and very pallid”); the “two luminous windows” represent his eyes (Usher’s eyes are “luminous beyond comparison”, and his house has “vacant eye-like windows”); the “spirits moving musically” seen through the windows represent his thoughts when he was well; and so on.
So in this conceit the “yellow, glorious, golden banners” flying from the roof of the palace represent Roderick Usher’s hair.