The lowest point on the raster must be on an edge. This requirement is not as stringent as it sounds. Basically, you want to deal with land that has no ponds or lakes. You want a network of valleys that will hold only linear bodies of water, at least one of which will flow off the edge. As already indicated, the ArcGIS hydrologic tools presented here do not work with lakes. They are strictly for stream networks. Lakes, which would constitute sinks, are not allowed.
It is worth remarking on the rather strange choice of numbers used to indicate flow direction. You’ve learned that water flows from any given cell to one of the eight adjacent cells. In the previous exercise on proximity, the directions were indicated simply by the integers 1 through 8. Why, then, are we dealing with numbers such as 32 and 64?
One conjecture is that, in the early days of hydrologic analysis, which correspond to the early days of computers, central processing unit speeds were slow and storage space in memory was at a premium.
It was efficient to indicate direction with a single bit (a 1 or 0) in a position in a computer byte. Those positions correspond to columns in the base 2 number system. Those columns are designated 1, 2, 4, 8, and so on. Eight bits in a byte; eight neighbors for each cell. It may be that the precedent set in the early days endures in the hydrologic modeling field today.