By things they've made, either in the past, or the project they're applying with.
If it's the former, I hope you don't get offended by it, but I think, looking at HN and your website, that you wouldn't be accepted. :) Nor would Sergey and Page.
Good design doesn't mean fancy design. Quite the opposite.
But in your 'startup ideas', in the idea #16, you said Google has no sense of design, so I suppose that the people responsible for it (Google founders originally. Marissa Meyer with a team of designer now days, I believe) wouldn't be accepted in YC.
And that is more of a rhetoric observation. I know they would.
But then isn't the 'sense of design' requirement unnecessary?