the reason the fish dont react to the flash is because it can't react to the speed of light... neither can we by the time the flash is over. but i bet if you shined a flash light at your fish, since its on constantly the fish will definitely move away from the light.
i think it still bothers the fish its just that it didn't have enough time to react to it since a flash happens in a "flash"
If you get an overhead flashthat will help take some nice pics too,i wouldnt worry about it enough to stop using it,the only time i think about it is when i get new fish and want to take pics and think maybe i wont use the flash.
I would assume that is has no ill effects other than a little bit of stress. Not even so "mental" stress, more just natural instinct stress. Fish don't have the brain capacity to comprehend things such as mental stress.
Using flash is no different than a flash light, or even an overhead light... it's just for a small amount of time. Look when you turn on your tank lights with the ballasts, they flash 2-3 times first before completely staying on. So I guess every time that happens your fish starts to hemorrhage. What about when fish are in the wild? Many underwater cameras use flash. The bottoms of white boats can shoot off what will look like flashes....