Re: How exactly?
I think you misunderstood my point. Yes, there are technically better options for making more demanding web based games. If for instance you want to do 3D then yes, Unity is the best option technically. The problem is Unity isn't really a viable option in terms of exposure/distribution and monetisation on the web, because as you said, the install base is a minute fraction of the Flash install base. Plus there just aren't the distribution channels that are available to promote a Flash game. It's much better suited to targeting other platforms (native mobile apps, consoles, stand-alone PC games etc.). Flash can do realtime physics (it's just code to do the maths at the end of the day) and as you said the Flash game market is generally 2D/retro games anyway.
Anyway, my original point was, this is a "blow to Flash" how? The fact is it isn't. Unity no longer exporting to Flash doesn't matter for Unity and certainly doesn't matter for Flash. It's just another excuse for the media to continue the uneducated Flash bashing.
I'm not knocking Unity at all. It's a great platform for indie developers that want to make games. Serious competition for Flash as a web based gaming platform it is not though. Flash is undeniably the most popular web based gaming platform by a mile (it's not even vaguely close) and for very good reasons.
HTML5 support doesn't help Unity's case and certainly isn't a "game changer". HTML5 is currently a mess, as is the nature of any browser dependent platform. The HTML+Javascript+CSS combo has always been a huge cross browser nightmare, even before they added a "5" on the end and conviced everone it's the second coming.
Which leads me to my point again, if Flash died tomorrow, what fills the void for web based games?