"If i choose XC3S50AN, there is no need of this serial flash. Please let me know."
Correct, the in-system flash replaces the external flash. Basically they combined a typical FPGA and flash memory using an internal SPI interface.
The datasheet says it all
www.xilinx.com/support/documentation/data_sheets/ds557.pdf:
After configuration, the FPGA design has full access to the
in-system Flash memory via an internal SPI interface; the
control logic is implemented with FPGA logic. Additionally,
the FPGA application itself can store nonvolatile data or
provide live, in-system Flash updates.
In-System Flash Memory
Each Spartan-3AN FPGA contains abundant integrated SPI
serial Flash memory, shown in Table 3, used primarily to
store the FPGA’s configuration bitstream. However, the
Flash memory array is large enough to store at least two
MultiBoot FPGA configuration bitstreams or nonvolatile
data required by the FPGA application, such as
code-shadowed MicroBlaze processor applications.