flashing addition

Not a good one.

Cutting away the siding where the new roof framing (rafter? ledger?) will attach to the existing wall is pretty standard with most sidings. That allows you to slip the flashing up under the Tyvec and siding.

It's also possible to cut a groove in the siding, about half the thickness, and use flashing that has a return (almost a hem but not shut tight - it's V-shaped and wedges into the slot, with caulk in the slot before insertion and covered completely with caulk after insertion). That's more typically a masonry/flashing detail, but it works okay in thicker wood siding that's flat (profiled siding makes it tough to do).

You should go with the first option.

The bottom of the siding should be at least an inch above the top of the shingles. Mock up the assembly and take a measurement so their won't be any surprises - then have at it.