Place coconut in food processor and pulse repeatedly until coconut is fine and not stringy. Set aside.
In a separate, large bowl, stir together condensed milk, melted butter, vanilla extract, and coconut extract (if using).
Pour in coconut and stir well.
Add powdered sugar, stir until combined.
Place bowl in refrigerator and chill at least 15 minutes.
Remove from refrigerator and roll into 1 ½ Tablespoon-sized balls (if the filling is too sticky, return to fridge for an additional 10 minutes to chill).
Place on wax-paper lined cookie sheet, repeating until all filling is rolled.
Place cookie sheet in the freezer for 10 minutes. If you wish to top truffles with toasted coconut, make that now:
To make toasted coconut: Line a cookie sheet with parchment paper and sprinkle ½ cup of coconut evenly over the cookie sheet. Bake in 350F (177C) oven for 3 minutes, remove, turn with spatula, and return to oven and repeat until coconut is lightly browned (about 10-15 minutes, total). Allow toasted coconut to cool before sprinkling over truffles.
Prepare melting wafers according to instructions on package.
Dip chilled coconut truffles into dark chocolate, return to wax paper lined cookie sheet and allow chocolate to harden before serving. If topping with sprinkles or toasted coconut, be sure to add before chocolate hardens.
Keep uneaten truffles refrigerated in airtight container.