It is called the Union Flag because it symbolizes the administrative union of the countries of the United Kingdom.
It is made up of the individual Flags of three of the Kingdom's countries all united under one Sovereign - the countries of England, of Scotland and of Northern Ireland (since 1921 only Northern Ireland has been part of the United Kingdom). As Wales was not a Kingdom but a Principality it could not be included on the flag.
England is represented by the flag of St George.
Scotland is represented by the flag of St. Andrew.
Northern Ireland is represented by the cross of St Patrick.