Flavour lore is lore in a fictional universe that is there, but not necessarily "true". Character in the universe may believe something so strongly they interpret it as true, even if it's actually not. Sometimes, canon lore is made into flavour lore through a retcon.
For instance, many citizens of Sanctuary believe Necromancers to be evil because they associate themselves with the undead. They are in fact quite the opposite, and strive for a balance in life and death.
Canon becoming flavour
In the first Diablo I Manual, there was a large section detailing demons, and it was written like a text made by a Vizjerei sorcerer from the game world. It explained that the goatmen were demonic beasts bred in hell.
The goatmen were not really mentioned in Diablo II, but with Diablo III, Blizzard announced they were not at all demons, but former humans, corrupted by the Vizjerei mage clan in the Mage Clan Wars. This was explained by Abd al-Hazir, a travelling writer, who is the closest you could get to an investigative journalist in Sanctuary.
Abd also mentions the Vizjerei, and their false studies on demons, which they made just because they wanted to lessen their blame in brining about the Mage Clan Wars in the first place.
In this case, the old lore was replaced by new one, by making the old one "flavour lore".