Cocoa powder is cocoa liqueur with most (around 80%) of the cocoa butter pressed out. It is mostly a definition thing, but it is also a practical thing.
Almost immediately after explaining this the follow up question, is "but can't I still just grind up the nibs into a powder and use it like cocoa powder? That will work right?".
No. You can not. Analogy time. You want to make a sand castle. The sand castle is your chocolate milk.
Think of a cocoa nib as a boulder. A really big rock. Got it? Now you are going to 'powder' it. Now you have a pile of gravel.
You mix in a bunch of water and start to build your sand gravel....and nothing happens except you have wet gravel. It won't hold together. If you are the size of Godzilla that gravel looks just like sand...but it isn't. It's still gravel. Until it's ground to the size of sand, it just isn't going to hold together when you add water. Now, I need to make something clear here. I'm explaining in terms of size and scale. Rocks don't have oil in them, and I can't come up with the perfect analogy.
To be closer, that boulder really should be a piece of asphalt. Rock mixed with this water repellant tar. When you 'powder' it, you get 'damp' gravel that sheds water because of all the tar present. In order to make your sand castle, you need to get rid of all that tar. You can do this by heating it, and pressing it....just like you press out the cocoa butter from chocolate liqueur.
And even so, there is going to be a lot of tar still present. Just like there is still 20% cocoa butter left in your cocoa powder. No matter how hard you press that pile of rock, the tar is going to stick on the gravel. But let's say you press out that tar, and grind your tar laden rock again until it is sand and tar.
When you try to mix in your water to make your sand castle it STILL isn't going to work right. Can you see that? The tar is going to push the water away. Some tar may float on top, some of the sand may sink to the bottom but overall you will have a mess. Just like if you try and mix cocoa powder and water (or milk) together. This is why it does not work.
To make the tar sand and water mix, you have to add something that will make them play nice together and mix. What makes oil and water play well together and mix? Soap. Chemically, part of it is oil-like and attaches to the tar, and part is water-like and attaches to the water and when mixed, the soap combines or emulsifies the mixture. Well, we sure can't use soap in our chocolate, but we do have and emulsifier we can use. Lecithin (there are actually others you can use, but that is beyond the scope of this question). Oil part. Water part. Add it (with the right technique - again beyond this question) correctly and everything will hold together and play nicely together.
And yes, it is a touch complicated. That's why you can't "just" use ground up nibs to make hot chocolate. Take a look at a container of hot chocolate mix. Sugar. Cocoa process with alkali. Lecithin. It all works to allow that cocoa butter laden cocoa powder to emulsify with water and/or milk.
Now, I want you to take a moment and think about the analogies above. Tar laden gravel. I want you to answer the question of whether you can 'just' substitute finely ground nibs for cocoa powder in your favorite chocolate cake.
Go ahead. Think a moment.
Your recipe for concrete calls for sand. Can you mix in tar laden gravel instead and expect it to come out the same?
Good. Of course not. Sand and tar gravel are just too different. From 50 miles away, they may look the same, but they are not the same.
Is there a way to use the tar gravel? Maybe. I am not saying you can't. Most likely the result will be different. Maybe good. Maybe bad. But surely different. I am simply pointing out that you should not expect it to be the same when you are substituting such a radically different item for another.
So, to bring it all back to chocolate, there are lot of places you can add ground up nibs. Most anyplace there are nuts (both are oil laden). Into your cookies, brownies, etc, but as additions to the recipe, not substitutions. Cocoa nibs, no matter how finely ground are just not the same animal as highly processed cocoa powder. But if you go into it knowing what you are adding (oily rocks) you have a better chance of working with it, and you won't be surprised that mixing ground nibs and milk just makes a mess instead of milk chocolate.