When I set a flag on a contact in a Public Folders contacts folder, it turns red when the reminder date passes, but users don't get a pop-up reminder. Why not?
Outlook fires reminders only for items in your default Inbox, Contacts, Calendar, and Tasks folders. To get reminders from other folders, you must use a third-party tool. Slovak Technical Services' Reminder Manager is a client application that lets Outlook fire reminders from any calendar, contacts, mail, or tasks folder visible in the Folder List, including those in Public Folders.
Another client application, Infoware's Important Dates Plus, stores reminders in a database and lets you set recurring reminders on an item in any folder, including Public Folders, and designate who receives the reminder. A separate program queries the database and sends out the reminders as email messages.
A possible server-side solution would be an Exchange Server event sink that periodically queries a particular folder for items that have reminders due and sends out an email message, perhaps to all authorized users of the folder. The place to start for information about this approach is http://msdn.microsoft.com/exchange.