One who makes bread or cake from one of the five grains must separate “ĥalla” from the dough, as long as it has a minimum amount of flour. (This amount is a measure of volume, not weight. The minimum volume is 2.16 liters of flour. For white flour, this translates into the weight of 1.55 kilograms or 3.4 pounds.)
When Jews were able to follow the laws of purity, they would separate between 2% and 4% of the dough and give it to a priest to eat. The teruma from the produce and the ĥalla from the dough supported the priests, who served the nation in the Temple and functioned as teachers and social workers. Nowadays, since we cannot attain the state of purity necessary to eat the ĥalla, we only separate a symbolic amount of dough.
This is the procedure in practice. After the flour and water have coalesced into dough, one separates a bit of the dough and recites the blessing: “Blessed are You, Lord our God, King of the universe, Who [has] sanctified us with His mitzvot and commanded us to set aside ĥalla.” The separated dough is wrapped up and either thrown out or burned, to make sure no one accidentally eats it. If a husband and wife bake together, the wife has the privilege of performing the mitzva, because women have priority for all home-based mitzvot. Many women love the mitzva of ĥalla, as it reveals the hidden holiness of bread, the most important food.