"I love America. I love Detroit, and I love black people," the musician said Sunday night during the annual Fight for Freedom Fund dinner at Cobo Center.
Kid Rock, whose real name is Robert Ritchie, used the event to diffuse criticism aimed at the Detroit NAACP branch which honored him with its Great Expectations Award.
The Macomb County, Mich., native said his use of the flag derives from a popular song by legendary Southern rock group Lynyrd Skynyrd.
Earlier, a group of about 50 people picketed outside Cobo Center in protest of the decision to honor Ritchie. The group also burned a replica of the flag, considered a symbol of racism and oppression to blacks in the South. It was carried by secessionist Southern troops in the American Civil War.
The dinner is the largest fundraiser for the Detroit NAACP branch. Civil rights pioneer John Lewis gave the dinner's keynote speech.
Others also were honored Sunday night, but most of the attention was focused on Ritchie.
Detroit NAACP President Wendell Anthony said Ritchie was being honored for his advocacy of the city.
"We're not lifting up the flag," Anthony said earlier Sunday. "We're lifting up a gentleman who has worked very hard to be a booster for Detroit."
From the time it was first announced, the choice of Kid Rock as honoree has been criticized by some who said the use of the Confederate flag conflicts with the National Association for the Advancement of Colored People's message.
"It stands for hatred, bigotry, racism, murder," Detroit political consultant Adolph Mongo said of the flag. "Every bigot and racist in this country loves that flag."
Mongo helped ignite the flag about 5 p.m. It took several attempts with a cigarette lighter before the flag caught fire to chants of, "Burn, baby, burn."
The Confederate flag symbolizes racial oppression, but also pride in the South for many Southerners, said Kirk Mayes, 35, of Detroit.
It "really is a symbol of the past," Mayes said after attending the dinner. "Today, it's about moving forward. We have to kind of be open to the spirit of forgiving. Not embracing its symbolism of hatred, but recognizing its relevance."
Ritchie, who appeared at the event with his son, received loud applause when he was introduced and again when he stood to accept the award.
He called the controversy surrounding his use of the Confederate flag a "fiasco."
"I've never flown that flag with any hate in my heart. Not one ounce," Ritchie said before announcing $50,000 in donations from his foundation to Detroit recreation centers, a conservancy on the city's Belle Isle, a youth theater group, a youth training agency and Habitat for Humanity.
Ritchie met recently with Detroit Mayor Dave Bing and discussed how he could help the city, mayoral spokeswoman Karen Dumas said Sunday night.
Ritchie also announced that his foundation would be donating $50,000 to storm relief efforts in tornado-ravaged states.
"That's what Detroit city is all about," he said. "We're fortunate enough that we haven't been touched by Mother Nature like our friends in the South have."
His family-run foundation is very active in the Detroit area. It has supported the Detroit-based Karmanos Cancer Institute's research and patient care, where Ritchie's donations have included money, guitars and even an invitation to dinner - to the highest bidder.
Through his "Made in Detroit" apparel line, Ritchie recently established the Made in Detroit Endowed Scholarship to help offset tuition costs of Wayne State University students from throughout southeastern Michigan who are selected for their academic achievements and limited financial resources.