Our Mishnah deals with benefiting from Orlah in an indirect way: an oven that was heated with the peels and remnants of Orlah fruit, and bread was baked in it. The question is what the status of that bread is, since the fuel with which it was baked is forbidden to derive benefit from.
The Status of the Bread:
The Mishnah rules that an oven "shehisiko biklipei orlah" - that was heated with Orlah peels - and bread was baked in it, "tidalek hapas" - the bread must be burned. The bread is not eaten and no benefit whatsoever may be derived from it; rather, it is burned. The reason: the benefit from the forbidden fuel is evident in the bread itself, since one can see that it was baked by the power of that very fuel.
The Clarification of the Gemara in Pesachim:
The Gemara in Pesachim clarifies that this refers to a case where the flame itself is directed at the bread, and at that moment the forbidden fuel still exists, so that the bread derives direct benefit from it. But if the baking took place afterward, when the fuel was already consumed and nothing remained except the heat it had generated, this is not necessarily forbidden benefit, since the benefit is only indirect. Therefore it is required that the flame actually be there while the fuel is still in existence.
If the Bread Became Mixed with Others:
The Mishnah continues: if this bread became mixed with other loaves - "ta'aleh be'echad umasayim" - it is nullified in two hundred, in accordance with the general rule of nullifying Orlah. And even Rabbi Meir, who in this chapter held that there are items benefiting from Orlah that are not nullified, said this only regarding an item that is counted, meaning an item of significance; whereas fuel, as we learned in the previous Mishnah, is not considered an item that is counted, and therefore the bread is nullified one in two hundred, as is the law of Orlah.
In summary: we learned that bread baked in an oven heated with Orlah peels is forbidden to derive benefit from and must be burned, because the benefit from the forbidden fuel is evident in it; that the prohibition applies specifically when the flame is directly against the bread and the fuel still exists; and that if the bread became mixed with others, it is nullified in two hundred, since fuel is not an item that is counted.