Definition
Co-op funds are marketing money a partner earns based on how much it sells of a vendor's products. The partner builds up a balance over time, then spends it on approved marketing. The vendor usually pays back part or all of the cost after the partner shows proof.
The main difference from MDF is how the money is earned. Co-op funds usually build up from past sales. MDF is often granted for a specific planned activity. Many programs blur the two or use the terms interchangeably.
Co-op balances often expire if not used. Partners who miss claim deadlines or lack proof of performance can lose the money.
In practice
A reseller earns a co-op balance from last quarter's sales and uses it to pay for a local trade show booth, then submits the invoice and booth photos to claim it.