The bread baked up nice and fluffy.

Literal

Bread [subj-が] fluffy baked.

ふんわり is a state mimetic for 'soft, fluffy, airy,' used for textures like bread, quilts, or light fabrics fluttering. Here it's used as an adverb without と — mimetics often take と optionally. 焼ける is the intransitive 'to be baked / to bake (on its own)' counterpart of transitive 焼く. が marks bread as the spontaneous subject of the state change.