Coconut milk is made from dry coconuts (grate the coconut flesh, add a little water to make a paste, then squeeze the mixture thru a strainer (or cloth) to extract the milk. The flavour and strength of the milk depends on the amount of water used. Nowadays a blender or food processor can also be used (or you can buy canned coconut milk or coconut milk powder) but the old fashioned method still tastes best!
Coconut water is the natural water inside a coconut (both dried coconuts or green coconuts) - the best tasting IMHO is from the young green ones with the bonus of eating the natural jelly inside (which eventually becomes coconut flesh in mature and dried coconuts). Coconut water is very good for you.