Professor will agree to be my thesis advisor but only if I can find a co adviser, what does this really mean?
As Peter Shor indicates, one cannot uniquely decode the professor's intent from this response.  You'll have to get more information from him to be confident of his motivations.

Let me say that taking on a coadvisor could show a lack of confidence in the student, but more commonly it shows an advisor's lack of confidence in her own experience or is done for a good, subject-oriented reason (i.e., to bring in specific expertise).  My first PhD student -- taken on when I was not yet tenured -- was coadvised with a more senior faculty member.  This was because I was nervous about myself, not about him (he was really great), but independently of my own gingerness it turned out to be a very good idea because his second adviser imparted some key technical knowledge that got used in his thesis in a very nice way.  Now (I am tenured and) I have four students who are solely advised by me: I got a little older is the main difference.  So I can understand this faculty member's perspective.

On the other hand, at least in my field (mathematics) advising a master's student is much easier than advising a PhD student: they stay for 1/3 to 1/2 of the time and the whole experience is not as intense.  Because of this, "splitting" a master's student is less common (and no examples spring to mind, but then again in mathematics, a master's degree is more likely to be done rather casually en route to greater things or as a terminal degree).

From a neutral (read: uninformed) outsider's perspective, I would say that if you're already sitting in this guy's research group then that's pretty close to taking you on as a master's student.  One thing you could try is just to organically increase your interactions without "putting a label on it".  In other words, instead of sitting in on the group, can you actually do some work for the group?  If so, you basically are this guy's master's student, and after a couple of months of work it will be much easier for all involved to call it that.  If on the other hand you express an interest in doing work for his group and he tells you why you can't at the moment....then there's your answer.  

Another tack to take would be to ask the professor for a specific suggestion of who could co-advise you.  Then you can take it up with that person...who of course may suggest single-handedly advising you.  I think the suggestion to co-advise without a specific person in mind to do the other half of the advising shows that he is not very enthusiastic about advising you.

Good luck.