There is a mitzva to use two loaves of bread on Shabbat, to commemorate the double portion of manna that fell on Fridays when the Jews were in the desert and that was referred to as leĥem mishneh (Shabbat 117b). Actually, there are many double aspects to Shabbat. Its mitzvot are two-fold – Zakhor and Shamor; its sacrifices are double – two perfect lambs; its punishment is double, and so is its reward. The bread that we use is doubled to express that the day is doubly great (based on Yalkut Shimoni, Beshalaĥ §261).
The person breaking bread should hold both of the challahs in his hands while reciting the berakha, but it is sufficient if he cuts only one. By holding both challahs during the berakha, he has already fulfilled the mitzva of leĥem mishneh (Rambam, Rashi, SA 274:1). However, others maintain that one should cut both challahs (Shlah, Vilna Gaon). Those who wish to follow this custom should make sure to use small challahs so that they can finish them during the meal. The widespread custom is to cut only one loaf.
There are many customs as to how to arrange the challahs for the berakha. Some put one loaf on top of the other and cut the bottom one (SA 274:1). Others cut the top challah (Arizal). Others cut the bottom challah at night and the top challah during the day (Rema ad loc.) Those who cut the bottom challah should draw it closer to themselves when reciting the berakha (MB 274:5). Some follow Arizal’s custom of having twelve small loaves on the table at every meal (Kaf Ha-ĥayim 263:2).
Ideally, the challahs should be completely whole. Accordingly, one should not remove the sticker often found on the loaves of bread (in Israel) until after the berakha, since doing so may peel away a bit of the crust, thus rendering the challah not quite whole. If there are no whole loaves available, one should use the ones that are closest to whole. If necessary, he may use frozen bread for leĥem mishneh (SSK 55:12). If there are no complete uncut challahs but there are two whole loaves of pre-sliced bread, be-di’avad one can make “ha-motzi” on them. This is because some maintain that since they are whole loaves, and their package serves to preserve them as one unit, they are considered whole (Meshiv Davar §21). If there are no loaves available but only slices, one should make the berakha over two slices (SSK 55:17).
At se’uda shlishit as well, one is obligated to use two loaves in order to give expression to the double nature of Shabbat (SA 291:4). If he does not have two loaves, he should make “ha-motzi” over one whole loaf. For when the manna fell, our ancestors in the desert were left with only one loaf for se’uda shlishit (Rema ad loc.).
