The image will flex as long as you keep it covered right up until you use it and set it in place immediately. Once it dries it starts to crack. At least with my experience. Good luck, sounds like a cool cake.
Yes I did this exact thing, I used an edible image to make a tartan loopy bow and it worked perfectly. A great way to transfer an exact pattern. And yes you do need to work quickly and keep the covered before they dry out. Good luck HTH
A lot depends on the brand of icing sheet you are using. But either way, use shortening to apply it to the fondant, this will allow for movement between the image and the fondant. When looking for a fabric type effect, use the image on sugarveil with a little luster dust. It is an amazing effect. Feels and looks just like fabric