Since you mentioned CO, I can outline some of the policies that were in effect during the time I had CO flight privileges (late 1980s to early 2000s). The 2010 policies have probably changed a great deal, but this post is meant to give you some general concepts:

Each employee received the privilege of "gifting" ten domestic US buddy passes. We also had access to a limited number of international buddy passes. Domestically, the recipient could either travel with the employee, or unaccompanied (without the gifting employee). Internationally, the buddy pass user needed to be accompanied by the employee (or another pass-eligible employee) traveling the same itinerary.

Whenever the buddy traveled with the employee, he/she received the same boarding priority as the employee. However, when traveling domestically without the employee along, the buddy received a very low boarding priority (something like SA5C or SA5P, I forget). Essentially, this meant that most all other space-available travelers would be seated before the unaccompanied buddy.

On CO during my years, buddy pass travelers, whether escorted by the employee or not, were NOT eligible to sit in premium cabins. This is not to say that I did not see this rule being broken by gate agents - I did, sometimes often (seating against the rules seemed positively endemic in EWR back then).

Bottom line: The only realistic approach to successfully using buddy passes is to set realistic expectations. Have your friend check passenger loads carefully, and re-check constantly before the day of travel. . Expect to travel at the least desirable times, and don't expect to travel to highly popular destinations in high season (such as Cancun during spring break)