When the Temple stood, a portion of dough was separated from the kneading and given to a Kohen. This piece of dough was called challah. Any dough that is made of wheat, barley, spelt, oat or rye was and is obligated in this mitzvah.
Today we have no Temple but the rabbis reinstituted the practice of taking challah.
As well, all kosher bakeries separate a piece of dough from each batch, and burn it.
How to Separate Challah
Challah is separated after the flour and water are well mixed together, after it has risen while the dough is still whole, before it has been divided and shaped into loaves. Some have the custom of covering the challah with a towel before making the blessing.
The piece of dough is then wrapped in tin foil and burned until it is inedible. It is to be noted that one should not burn the challah in the same oven that one is baking their challah.
There are stipulations as to when one is allowed to make this blessing:
Less than 10 cups of flour (approx. two and a half to three pounds) is completely exempt from challah separation.
More than 10 cups of flour requires separation of challah, but no blessing is recited. Here’s what you say: Harei Zeh Challah
More than 14 cups of flour (over 4 pounds) requires separation of challah with a blessing. Here’s the full blessing, which is said while pulling away a large fist full of dough:
BA-RUCH A-TAH A-DO-NOI ELO-HAI-NU ME-LECH HA-O-LAM A-SHER KID-SHA-NU B’MITZ-VO-TAV V’TZI-VA-NU L’HAF-RISH CHAL-LAH.
Then, hold the piece of dough in the air and say: Harei Zeh Challah.