Well the error message clearly says that you don't have Flask installed. If you created application in webfaction control panel as for Python 2.7 then you also need to install all the libs and Flask itself for Python 2.7. You saying that you installed everything with easy_instal2.6, so it means you installed everything for Python 2.6.
I would say firstly install all the libs and deps (flask too) for Python 2.7 and try again. Also I would suggest to start using virtualenv, cause it will help do not mess with the packages versions later (some short info on how deploy with virtualenv on webfaction http://manavgoel.net/blog/post/2012/7/Deploying-flask-website-on-webfaction).