Dragon #303, page 32:
Hydraflail: exotic weapon, 40gp, 1d8, crit 20/x3, 10lb, +4 to disarm.
Real World, a multi-headed flail produces something of a "shotgun" effect, spreading force/damage over a larger area. Your chance to hit goes up a little, but armor penetration sucks. Since a flail is slower than a sword but hits harder, it tends to be used against heavily-armored opponents where you need the hard hit to punch through the armor; vs. an agile, lightly-armored opponent, a sword has a better chance of hitting. Since the hydraflail loses the armor penetration while retaining the weight and awkwardness of a standard flail, it's a substandard weapon except in a few special circumstances - which is why, historically, such flails were extremely rare. Like the RL two-bladed sword, it was a cool-looking idea that didn't pan out so well in actual combat.
If I was statting up a hydraflail as an exotic weapon, I'd give it a +1 circumstance bonus to hit, an extra +1 to Trip and Disarm attempts, and damage one die type lower (e.g., d8 becomes d6).