A hanyō is a mixture of a human and a yōkai, either by birth or by unnatural means. There are two ways that a hanyō is born. One can be born of a yōkai and a human. The other way is when a human with an unfulfilled desire merges with many demons; Naraku was born in this fashion.
Many hanyō by birth show physical signs of their yōkai roots, though they usually have a primarily human appearance.
While a hanyō can never be as strong as the demonic parent without becoming a full yōkai, most hanyō seem to be powerful enough to not only deal with any human hostilities, but also to easily dispatch most yōkai if their will and aggression is very strong. It seems as if the only demons that have hanyō spawn are the Yōkai powerful enough that even diluting their power with human blood would still leave their children better off than the majority of demons. Inuyasha is the prime example of this, born of the Inu no Taishō, a very powerful daiyōkai.