They may not be hands off but they may be there from day #1. It's usually a matter of how much time they can commit. If it is only a little bit then it is usually in an oversight role, but it is also possible that they are instrumental in raising the first round of funding. Or in the case of a medical start-up the person who allows their name to be used by the venture because they believe in the concept or maybe even because they contributed the idea. Essentially: co-founders are those that were there on day #1 or that the rest of the founders allowed to call themselves co-founder even though they joined later (but they have made an outside contributions).

So it's a term with a strict definition but also one with plenty of exceptions.