I've heard word that in the Netherlands only a professor/hoogleraar can supervise PhD students but I've found little to solidly confirm this. I've also heard that in practice, other arrangements are often made. Can anyone comment or confirm that a universitair hoofddocent (equivalent to a reader or an associate professor) cannot supervise PhD students? How do full professors handle the workload of supervising all the PhDs?
There is a difference between supervisor and promotor. You need a promotor, who is going to sign off your thesis. This needs to be a full professor (not associate or assistant - edit: nowadays at least at some universities in the Netherlands, associate professor is the rank needed to be the promotor, not professor - see answer by GrotesqueSI and comments). However, your main supervisor can be any PI (comparable to assistant/associate professor). Your daily supervision can even be handled by postdocs, and to some extend even by senior PhD students.
Depending on the status of your PI, if he or she isn't full professor (yet), a promotor may not be involved in a PhD students work at all.