As I mentioned, you can use a 1/8″ crushed stone, but even a coarse sand would work. We find the crushed stone drains well and this is important. If you live in a cold climate, moisture built up under the stones will cause them to “heave” in the freeze – thaw cycle. Using a setting-base like small crushed stone, sand or similar, enables you to support the stone evenly so it doesn’t wobble when you step on it. You may find yourself lifting, re-adjusting the base material (to fit the shape of the bottom of the flagstone) and re-setting the stone a few times before getting it nice and stable.

Perhaps if the flagstone pieces you intend to use are small and thin you could use concrete to set them in. The concrete might bond with the thin flagstone and function like a thicker, heavier mass to give stability. I’ve never done it that way so it’s hard to say.

And yes, sod would then be installed around and in-between the stones. Established grass will also help to stabilize the flagstone and keep it from moving and shifting. The grass will actually grow over the flagstone edges a bit in time. Therefore, we do trim back the grass occasionally to keep the majority of each stone exposed.
Hope this helps. Let us know how things go.
Roger