They become dormant and still produce vellus hair, but they don't cycle. Dermal papilla cells, one of the two cell populations that cooperate to generate hairs, eventually gets destroyed by Androgenetic Alopecia, while the other cells, epithelial stem cells residing in the bulge of the follicle (these also migrate downwards to form the hair germ in the beginning of anagen and later the hair shaft, after cooperation with the dermal papilla) don't get destroyed but become dormant instead. That is, they stop dividing and just sit there.
Unfortunately, you can't grow hair without dermal papillas so regrowing vellus hairs with medicine is most likely 100% impossible. You need to repopulate the follicle with healthy dermal papillas cells to get it to grow again. Several cell therapies are on r&d timelines right now across the globe.