Realize that I did not take driver's ed. in school because I wasn't as inclined to be driving as all of my older classmates. Nonetheless, I took my driver's test, passing both the written and driving tests on my first try. Nowhere in my memory did the driving manual say anything about hanging a rag out of the driver's side window when abandoning my car.
I've seen a few cars lately that have done this. They were left in odd places, too. I suppose that there must be some reason for leaving a t-shirt or a towel, usually white, rolled up in the driver's side window, otherwise not so many people would do it.
Maybe it's some sign that they're coming back for the car and it shouldn't be towed? Maybe they've just seen so many other people do it that they decided they should too, not knowing the consequences of leaving their car abandoned without the wick sticking out above the window.
That's what it looks like, too - a wick on some Molotov cocktail. It's like they expect someone to come along and light up the car and throw it somewhere.
Any explanations for this odd practice?
My guess is people do it to increase the visibility of their car at night, since cars are generally pretty dark and don't have lights when abandoned.
It is what you thought it was. It is a widely employed but rather colloquial distress signal loosely translated as "Yes, my car is broken down but I have the situation somewhat under control and if you happen to see me a mile down the road carrying a gas can please stop and pick me up. Oh, yeah, and if you are a cop, please don't have it towed."
I have used this signaling procedure while broken down myself.
I think the white rag/t-shirt hanging out of the car is a white flag signalling surrender to all the oil companies, that we hope they will not raise gas prices again. "We give up, just don't raise gas prices again".