While bread is permitted to be eaten and milk is permitted to be drunk (assuming they are both Kasher, of course), the Rabbis forbade dairy bread, unless it is obviously dairy by its special shape. The reason is that there is a fear that someone would not realize that it is dairy and would come to eat it with meat, Heaven forbid.
If someone did eat bread of this nature, may one recite the blessings over it? There is a difference of opinion in this matter. The Kaf Hahayyim states that even though it is a decree of the Hakhamim not to have bread of this type, since the food itself is technically permitted, and it is an external factor that caused it to be forbidden, one should do the following.
One should have thoughts of repentance in mind and then recite the blessings. To not recite any blessing on food which is technically permitted, would only be adding to his transgression, Heaven forbid.
(See Shulhan 'Arukh 196:1. Kaf Hahayyim, ibid., Oth 7)
halacha, kaf hachaim, kaf hahayim, baking and eating bread made with milk, dairy bread