It refers to when two people hug, but one, or both of them hug with the upper body only, because they are afraid of full body contact, for whatever reason, perhaps to avoid giving the impression that they wish to become intimate with the other person. When doing this the backside sticks out to particularly avoid crotch contact. I believe men mostly do this.
This may apply to any half-hearted hug, one with a family member or acquaintance with which one is only barely aware of or interested in, for example. Any cause for discomfort or awkwardness may lead to this hug, as Matching Mole states.