Is there an algorithm?
I would think matched internal resistance takes precedence over capacity, but there must be some limit as to how far apart capacity can be, right? Let's assume identical battery models are used.
Opinions are welcome. I didn't expect anything like an multi variable calculus analysis of which method of matching is best...and I certainly hope not since I was lost in Calc II.
I may be wrong, but I match only capacity for serial use. Typically NiMH. And batteries of the same age, brand and model.
I don't have any parallel battery flashlights, currently, but I would just match voltage for parallel use. That is, simply use fully charged batteries. Capacity match is not critical for parallel use, but voltage is. I assume.
If internal resistance is important, I would assume it is in parallel use. Not in serial.
I agree with you that first it's equal capacity for series, and equal voltage for parallel. In this configuration, I think it would be better if cells with lower internal resistance had greater capacity. That seems to make sense for series too. Closely matched capacity is most important, with internal resistance as secondary factor.
Now I'm starting to think internal resistance might not be a big deal in either configuration except as an indication of the health of the cells and the ability to provide high levels of current.
Adoby is probably right. Capacity matching makes more sense - you are trying to prevent overdischarging a single cell. If the capacity is the same for 100x cells which you run in a 100s1p setup, other factors can vary wildly. One cell may have terrible voltage sag, but it will still not become overdischarged as long as the capacity is the same as the rest.
Legit packs for any consumer electronics are always managed by a BMS as far as I know. In that scenario matching really doesn’t matter, manufacturers just use cells from the same batch and hope for the best. The BMS will shutdown the equipment whenever a single cell becomes too low.
So I think it’s only hobby folks who care about matching.
I think budget manufacturers like HobbyKing match based on internal resistance because it’s fast and easy. I don’t know how the high end hobby pack manufacturers handle matching.
That said… I don’t really know anything about it. The above is simply guesswork. 
Guesswork is fine! You might be right, and probably are, but you might be wrong and help me think of what is right and then I'd share and we'd both benefit.