Coconut Seed are one of the byproducts from splitting a coconut. They can be planted on the trunk of a palm tree to produce coconuts (similar to the planting method of cocoa beans). Coconut seeds can also be crafted into themselves by placing two coconut seeds adjacent to each other in the crafting grid.
Which will become the following in the crafting table when you pull out the seed
Coconut seeds can be planted on a palm log to grow, however they are pretty picky on how they are planted. They will pop off if a block is beneath it, or the lower seeds will pop off if there are any more seeds on that side of the stack of logs/tree. So if you had a column of wood 4 blocks high, and placed seeds on the 2nd and 4th block, the 2nd one would fall off because the 4th is higher up.