It is permissible to prepare bread and other baked goods such as Masa and cakes on Yom Tob. One may knead the dough and put it into the oven on Yom Tob.
One who kneads dough for baking on Yom Tob must separate "Halla" just as is done on ordinary weekdays. The obligation of Halla requires a person to separate a small piece of dough if he bakes a quantity of approximately 3.5 lbs or more of dough. In ancient times, this piece of dough was given to a Kohen. Nowadays, when all Kohanim are presumed to be Temeim (ritually impure) and thus unfit to eat Halla, the piece of dough is burned. A person who prepares dough on Yom Tob must separate Halla, but the Halla is not burned on Yom Tob. One should instead put it aside and then burn it after Yom Tob.
This Halacha applies only if the kneading is done on Yom Tob. If a woman kneaded before Yom Tob, but did not separate Halla before the onset of Yom Tob, she may not separate Halla on Yom Tob, as this violates the prohibition of Metaken ("fixing" or rendering something usable). When a woman kneads the dough on Yom Tob, then she may separate Halla, since she did not have the opportunity to do so beforehand. However, if she had kneaded the dough already before Yom Tob, she is not permitted to separate Halla on Yom Tob.
It should be noted that the obligation of Halla applies only to dough which one plans to bake. If one prepares dough for frying, such as if he makes donuts, he does not separate Halla from the batter.
It is forbidden on Yom Tob to use molds for baking in specific shapes, or devices to make pictures or letters on cakes, as this resembles writing. If one prepared or purchased a cake with lettering and the like before Yom Tob, then he may cut and eat the cake on Yom Tob, as this is not considered "erasing" the letters or designs. This is the ruling of Hacham Ovadia Yosef, in Hazon Ovadia (Yom Tov, pp. 68-69). Nevertheless, given the different opinions among the authorities on this subject, there are those who try to avoid using these cakes on Shabbat or Yom Tob, or at least try not to cut the lettering or the images on the cake.
Summary: It is permissible to knead and bake on Yom Tob. If one kneads 3.5 lbs or more of dough for baking on Yom Tob, he must separate Halla (meaning, remove a small piece of dough), and the Halla is burned after Yom Tob. One who kneaded the dough before Yom Tob may not separate Halla on Yom Tob. One may not use on Yom Tob molds to bake in specific shapes, or put lettering or designs on cakes. If such a cake was prepared before Yom Tob, it is permissible to cut the lettering or designs, though it is preferable to avoid cutting letters and designs on cakes on Shabbat and Yom Tob.
