Great question. Here's one way to do it:

The first is how clunky the process of going from X to flashcard feels to the end user. One way to deal with the fact that we are crossing software border is to add an extra step where highlighting something allows you to go into an "inbox" before any cards are made. It is clear what the user has to do. They read something interesting, and add it to the inbox. When they are ready, they can head over and only then use some sort of automation (either via custom prompt for an AI or otherwise) to make the cards. This gives them another step, or interface, at which they can decide whether or not the thing they highlighted (since highlighting is easy) is actually worth something. It segments the process into clear easy sections: highlighting, deciding which highlights to flashcardify (and therefore keep), and flashcard review.

It definitely is an open-ended process, and I appreciate that apps need to have a strong opinion on how to direct users from start to finish; but I feel this is definitely possible now with cheap and quick AI.

I didn't answer every question but hopefully that helps somewhat.

The easiest thing, which I believe I suggested, was highlight->action to create a new card front, and highlight->action to creat the back or a new front. It needs to work well casually in general, and easy when focused.

I’m sure AI could theoretically help but not sure it’s necessary. Part of the benefits of most cards is creating them yourself.