The CTO is your technical guru. That is person that keeps up with the technology market and understands how to use new technologies to push forward the mission. In a traditional sense the CTO is more of an R&D person with a small staff doing advance project and prototypes. The CTO in conjunction with Marketing and Sales should define the product roadmap.
The VP of Engineering is a manager with technical background. This person will usually have the engineers (if less than 10) or the engineering managers reporting to her. This person makes sure that technical roadmap is executed, that the people that needs to be hired are hired and that the technical team has everything it needs to build and maintain the product.
In most startups while you are small one cofounder is the CTO, VP of Engineering, Director of Engineering and Lead Engineer at the same time. Most entrepreneurial engineers that manage to hack together a product that gains traction adapt well and quickly to the CTO role. Yet, adapting to the VP of Engineering role is harder.
From what you described, you need a VP of Engineering in charge of hiring and managing the technical team and your cofounder takes the CTO role to set technology and product direction.