I'm trying to remember this movie I saw when I was a kid, don't remember much, but here's what I can gather- there was a boy and a flying squirrel, he meets a girl from a magical world, his house is flooded, there's some magic scepter thing. Good luck trying to figure it out.

That would be "Little Nemo: Adventures in Slumberland".

OMG!! My dorm mate and I have been searching all night for this movie. I was looking up old/retro things from my childhood and remembered glimpses of this movie, but couldn't remember the name. I finally ended up doing a Google search for an animated movie with a kid and a flying squirrel and came up on this page. The description was almost perfect, we remembered the same stuff. And then the answer. YOU ARE AWESOME!! Thanks!!