Flat bands in condensed matter systems can host emergent states of matter, from insulating states in twisted bilayer graphene to fractionalized excitations in frustrated magnets and quantum Hall materials. A key phenomenon in certain flat-band systems is Aharonov-Bohm caging, where particles become localized due to destructive interference caused by gauge fields. Here we report on the experimental realization of highly tunable flat-band models populated by strongly interacting Rydberg atoms. By employing synthetic dimensions, we engineer a flat-band rhombic lattice with twisted boundaries and explore the control of Aharonov-Bohm caging during non-equilibrium dynamics through a tunable gauge field. Microscopic measurements of Rydberg pairs reveal the interaction-driven breakdown of Aharonov-Bohm caging in the limit of strong dipolar interactions, where lattice bands mix. In the limit of weak interactions, where caging persists, we observe effective magnetism arising from the interaction-driven mixing of degenerate flat-band states. These observations offer insights into emergent phenomena in synthetic quantum materials and expand our understanding of quantum many-body physics in engineered lattice systems.