A polite word with a household past
In current English, lady is first of all a word for an adult woman, usually with a shade of courtesy. Speakers use it in set addresses such as ladies and gentlemen, in everyday politeness, and as a title: the wife of a lord, or a woman holding certain ranks in her own right. It can also mark manners rather than pedigree, so that ladylike describes conduct thought to fit high rank. None of that polish is original. The English word is native, and its oldest attested job was to name the woman who ran a household.
Native English, already in Old English
English did not import lady from French. It inherited it from Old English hlǣfdige, also written hlǣfdīge, with Northumbrian hlafdia and Mercian hlafdie. The noun is recorded before 1150. Early Middle English spellings around 1200 include lafdi and lavede; later copies run through lavedi, lefdi, levedi, and lady. The internal f was lost in the fourteenth century, the same kind of reduction that left woman, head, and had without an older fricative. Scots keeps leddy. Outside English the form is rare except as a loan, as in Icelandic lafði.
That near isolation matters. Norman French brought its own vocabulary of rank, but lady was already the ordinary English name for the mistress of a house and for a noblewoman. Romance titles layered onto a Germanic word rather than replacing it.
A disguised compound of loaf and dough
The origin of the word lady is a disguised compound. The two halves no longer look like English words to most speakers, but Old English still shows them. The first is hlāf, bread or loaf. The second is a feminine agent related to dǣge, a woman who kneads dough, from the same root as dough itself. That dough-word is solidly Germanic: German Teig and Icelandic deig still mean dough, and Gothic already had the noun. English dey, once a dairymaid or farm servant and now mainly dialect, is a close relative, as is the first element of dairy. Surnames ending in -day, Faraday among them, often hide the same servant word.
Lord is built on the same loaf. Old English hlāford comes from hlāf-weard, the bread-ward or keeper of the household bread. Lady and lord are therefore a pair: one names the woman associated with making the bread, the other the man associated with guarding it. The first vowel of lady was reshaped by i-umlaut, so hlāf appears as hlǣf before the second element. The vowels of independent dǣge and of the second half of hlǣfdige do not match cleanly. One explanation is later reduction; an older theory posits a different Germanic vowel grade. Either account still treats the compound as native. The word has nothing to do with lad.
From bread-kneader to title
If the parts mean bread-kneader, the leap to mistress looks strange, and major dictionaries have said so. The original Oxford English Dictionary judged the sense history not very plausible. The Century Dictionary called the analysis improbable. Walter Skeat marked it with perhaps. No stronger etymology has replaced it. A later amateur story recast the lady of the manor as a bread-giver who handed loaves to the poor with her own hands; that is eighteenth-century invention, not Old English evidence.
What the records actually show is already a social step. In Old English, hlǣfdige meant the mistress of a household and the wife of a lord. Because English never developed feminine counterparts to titles such as æþeling, eorl, and thegn, the same word served as the courtesy title for noblewomen from roughly baroness to princess. It was also used of the Virgin Mary, so Our Lady and a long trail of plant names, feast names, and place names keep a genitive that once meant Our Lady's. Ladybug and ladybird, Lady Day for the Annunciation on 25 March, and lady's slipper for an orchid all sit on that religious use, not on the secular title alone. In Middle English the old genitive hlæfdigan merged with the nominative, which is why so many compounds look as if they start with lady rather than Lady's.
From household head the word kept spreading. Around 1200 it names a woman of superior social position. In the early fourteenth century it names the woman a knight serves. Ladily appears about 1400; ladylike is attested from the 1580s; a related sense of manners that befit high rank is recorded in 1861. By the 1890s lady could address almost any woman. Along the way it also named a sweetheart, a lady of pleasure in the seventeenth century, and, in slang, a playing-card queen. Lord stayed close to rank and authority. Lady kept picking up new shades, including the polite stand-in for woman that still sits beside the older title.
The loaf that no longer shows
The useful residue is the household set. English still eats a loaf; it still names dough; it still has lord. Lady is the fourth piece, worn so smooth that the bread is invisible. A word that now sounds like rank began as a job inside the house, and the job was making the bread that the hlāford was charged to keep. The dictionaries' doubt is worth keeping too: the compound is the best account we have, not a story that ever felt obvious.