Butter a 13x9 baking dish. Set aside.
In a dry skillet, over medium heat, toast the coconut. Allow to cool. Reserve 3 tablespoons coconut and mix the rest of the coconut with the cereal.
Melt the butter in a large, heavy-bottomed, whisk in the vanilla. Add 4 cups of marshmallows and stir until completely melted.
Add the puffed rice cereal/coconut mixture and the remaining 1 cup of marshmallows. Stir until well coated.
Press the mixture evenly into the prepared baking dish using the back of a spoon.
Meanwhile, melt the caramels and milk over low heat, whisking until smooth. Drizzle over the treats. Sprinkle with remaining coconut.
Cool completely before cutting into squares. This always takes a lot longer (at least an hour, normally more like 2) than you'd think so be prepared.
Slice into about 20 squares.