1. Heat oven to 360°F. Remove wrappers from caramels.
2. Beat butter, granulated sugar and vanilla in large bowl until well blended. Gradually mix in flour and nuts, if desired. Knead mixture until it holds together and can be pressed into a ball. Roll mixture into 48 (about 1-1/4 inch) balls. Flatten each ball slightly; press around one caramel, covering completely. Place on ungreased cookie sheet.
3. Bake 12 to 14 minutes or until cookies are set but not browned. Cool slightly; remove from cookie sheet to wire rack. Cool completely. Roll in powdered sugar or drizzle with additional melted caramel candies, if desired. Makes 48 cookies.
HOLIDAY VARIATION: Roll cookie balls in colored sugars or a combination of colored sugar and granulated sugar before baking. Omit rolling in powdered sugar after baking.