In a mixing bowl, blend the condensed milk and vanilla. Add the powdered sugar to the mixture a little bit at a time, stirring until smooth. Stir in the coconut; the mixture should be firm. Pat the mixture firmly into a greased 9x13x2 inch pan. Chill in the refrigerator until firm.
In a double boiler over hot water (not boiling), melt the chocolate, stirring often. (You may also use a microwave oven: place the chips in a bowl and heat for one minute on high, stir, then heat for 1 more minute).
Remove the coconut mixture from the refrigerator and cut into 1x2 inch bars. Set each coconut bar onto a fork and dip into the chocolate. Tap fork against the side of the pan or bowl to remove excess chocolate. Air dry at room temperature on waxed paper. This could take several hours, but chocolate sets best at cool room temperature (below 70°). You may speed up the process by placing the bars in the refrigerator for about 30 minutes.