What does kneading bread dough actually do?

Flour contains two proteins, glutenin and gliadin, which are folded up and inert in the dry powder. Add water and work the dough and they unfold and link to each other, building an elastic three-dimensional mesh - gluten. That mesh is what traps the carbon dioxide the yeast produces, and it is the difference between bread and a flat dense slab.

You can get there without the effort. Leave a wet dough alone for long enough and the same bonds form on their own, which is the whole basis of no-knead bread - time substituting for work. Very wet doughs also develop faster, because the proteins move more freely, which is why a slack ciabatta dough is handled rather than kneaded.

How much gluten a flour can build is why flours are not interchangeable. Bread flour is milled from hard, high-protein wheat; cake and pastry flour from soft low-protein wheat, because a cake wants tenderness rather than chew and too much gluten makes it tough. It is also why rye bread is dense - rye has very little of the protein needed - and why gluten-free baking is genuinely difficult, since there is no single substitute for a structural protein network.