distorted sound on video chat

In general, it's going to work better with a headset than with the laptop's built-in microphone and speakers.

Ultimately, you're hearing the echo because the microphone on the other end is picking up your voice coming out of the speakers and sending it back, and there's a little delay each way, so you end up with the super annoying echo thing that you're describing.

Flash Player does support a feature called Acoustic Echo Cancellation which reduces this kind of feedback, but the specific chat service has to have it enabled.  It's not a problem specific to Flash, and a headset or dedicated speakerphone hardware is usually a better choice.  You can sometimes tune your computer's audio settings to improve things, but it's somewhat involved, and results vary depending on the hardware in question.

I run into the same thing when using dedicated teleconferencing software with someone one the remote end with a high-end laptop.  A cheap USB headset will run you <$20, and is by far the easiest way to solve the problem.  As an alternative, some video conferencing solutions like Google Hangouts will actually let you add a phone number, so you could do video over the computer and talk on the phone for audio, and it's free if you're both in the US.

Hope that helps!