Coconut Milk is made from the grated meat of the coconut which is then macerated (soaked) in some water.
Coconut Water is the liquid that comes right out of coconuts without any processing.
So when you buy coconut milk it is made from the coconut itself which is the insides of the coconut but the coconut water is just the coconut liquid that is contained inside the coconut.
The coconut water doesn't require the processing like the coconut milk does.