co65 is an object file conversion utility. It converts o65 object files into assembler files, which may be translated by ca65 to generate object files in the native object file format used by the cc65 tool chain.
Since loadable drivers used by the library that comes with cc65 use the o65 relocatable object code format, using the co65 utility allows to link these drivers statically. This enables the use of these drivers without loading additional files from a disk or other secondary storage.
Another use would be to link object files generated by other development tools to projects using the cc65 tool chain, but this has not been tested until now, since such tools are currently rare.