Breeding dogs is far more than putting two AKC-registered dogs together.  In the first place, AKC registration is NOT a stamp of approval or a guarantee of quality — it is merely a birth certificate.  The AKC is only a registering body, not a policing entity.  The puppies of any two AKC-registered dogs of the same breed can be registered, regardless of their quality or health — which is how puppy mills stay in business, but that’s another story!

The different breeds (close to 150 breeds now recognized by the AKC) were bred by their originators over many years, generation after generation, usually for a specific purpose; hunting vermin, assisting a human hunter, herding cattle or sheep, pulling a cart or sled, police work, guarding the homestead, and in some cases, companionship.  In most of these classifications, some physical abilities and characteristics as well as mental tendencies (instincts) were necessary for the dog to do his "job".  In modern times, many of these jobs are no longer necessary but the physical characteristics and instincts remain in the breeds, which are most likely now considered companion animals.
 
In order to maintain consistency and quality, breed clubs were established (through the AKC — a "club of clubs") who then each drafted a written standard to clarify the characteristics of their breed.  If everyone bred their dogs without consideration of the standard, there would be too much variation within the breeds, and pretty soon the name of a breed would be meaningless.  If one wished to discuss "Breed X", how would we know if Breed X were large or small, short or long haired, flop-eared or erect eared, easy to train or independent if everyone bred it according to their idea of what is correct or "good enough"?

After establishing the ideal characteristics of a breed, it is necessary to make comparisons of the different animals to decide which ones should be bred to carry on those ideal characteristics.  Here is where dog shows come into play; I know you thought they were merely beauty contests of rich and famous owners, but not so!  They were established with the purpose of evaluating breeding stock; the idea being to have knowledgeable, impartial people making the determination of which dog best measures up to the written standard and given some measurement of how well they meet that standard (a championship) compared to others of it’s breed in that area.

Another point to consider in breeding dogs, aside from it’s breed characteristics, is health.  What appears to be a healthy dog from your observances and the customary yearly "vet check" is not an indication of what that dog might be passing down to it’s pups.  Each breed has it’s problems, and as a responsible breeder it is crucial to screen breeding stock before it is bred; blood tests to screen for Von Willebrand’s disease (a bleeding disorder), thyroid abnormalities, and diabetes; screening for inheritable eye disease (tested dogs are certified "CERF" — Canine Eye Registration Foundation), Baer testing for hearing, and x-rays for hips, elbows, knees and heart (tested dogs are certified "OFA" — Orthopedic Foundation for Animals) are all examples of screenings that may need to be done before a breeder breeds a dog.

My point?  There is not an unlimited number of homes available for all the dogs that exist — the numbers of dogs awaiting execution in shelters across the country is proof of that.  Those dogs are not there because of the responsible, show-going, health-screening, breed-club members; they are there because of back-yard breeders and puppy-millers who sold puppies with only one objective — the almighty dollar.  The puppy purchasers bought a puppy without researching the characteristics of the breed (whether it was right for them) and perhaps later became overwhelmed with training difficulties and/or health problems — and then dumped the dog in a shelter.

When one purchases a puppy from a responsible, ethical breeder, they are assured of several things:
1.  Puppies come from evaluated stock, with characteristics indicative of that breed and with the proper health screenings performed.  This is not to say health problems never occur, it is just that they are far less likely than if they had come from untested parentage.  A breeder will also screen prospective buyers to make sure this is the right breed for them.
2.  Puppies will be sold on a contract that includes spay or neuter of the pup, so that the pet dog will not be influenced by hormonal activity and will not be producing unplanned for puppies; altering will prevent testicular cancer in males, and pyometra in females.  It also keeps the breed healthy and out of the hands of backyard breeders and puppymills.  A contract should also include a return policy, so that in the event the puppy does not work out for any reason, the breeder will rehome the puppy — to prevent it winding up in a shelter somewhere.

When a breeder places puppies, he or she evaluates each puppy in several areas; of course, there are other breeders in search of additional show and breeding stock who also want puppies, as well as pet and event people.  So each puppy is evaluated at approximately 8 weeks of age for their show/breeding potential, their temperament, and their activity level, and then are placed in the best home that suits their individuality.  For instance, a very active and out-going puppy may do best in a home where Agility and/or Obedience training is desired; a shy or quiet puppy may be better suited to an adults-only, very encouraging home, and so forth. 

A pet-quality puppy is not necessarily an "inferior" puppy — he may just not have the "attitude" desired in a showdog, or he have a very minor imperfection, not discernable to the general public, that would keep him from being a serious contender in the showring.   On the other hand, there are many "show quality" puppies that, no show homes being available at the time, have gone to pet homes.  Indeed, many showdogs are indeed someone’s pet during the week and go to shows only as a week-end hobby for the owner.

In addition to matching the best puppy to each would-be owner, the puppies receive sufficient handling and socialization before going to it’s forever home.  Many people are unaware that the socialization skills a puppy learns from it’s mother and siblings are very important — many dog-aggression problems stem from a puppy who was removed from it’s mother and siblings at too young an age; they just never had the opportunity to learn about "pecking order" and where they stand in the social hierarchy.  That is why a real breeder won’t place puppies before the age of 8-10 weeks; back-yard breeders and puppymills place puppies as soon as they are weaned and the money can exchange hands.
My purpose in writing this page is to encourage the puppy buyer to buy their next pup from a responsible, ethical breeder.  Yes, your initial financial outlay will be greater, but you will be buying a puppy that is: a good representation of its breed, has health and structure clearances of many generations behind it, is temperamentally correct and matched to your family and activity level, and has a return policy to it’s breeder.
 
A puppy from such a breeder will probably cost $1,000-$2,000, depending on the breed.  Some breeds, due to a larger proportioned head (Bulldogs, for example), are born almost exclusively via C-section, and that drives up the cost for the breeder to produce puppies, and naturally the additional costs are reflected in the cost of a puppy.  Also, if a breed is relatively rare due to small litter sizes, the cost goes up (supply & demand theory).   It costs money to campaign dogs at shows and have the necessary health tests completed; a breeder has to be compensated somewhat for his/her efforts.  You may be able to open your newspaper to find many a breed available for $200, but if the dog grows up to need it’s hip sockets replaced at $2500, goes blind, or is so aggresive that you fear taking it out in public — what have you saved?  Also, by purchasing a puppy from a backyard breeder or petstore (many of them buy their stock from puppymills), you only perpetuate the "system" of the breeding of inferior and/or unhealthy stock.

Related Links:
http://www.akc.org/breeds/
http://www.dog-play.com/ethics.html
http://www.woodhavenlabs.com/breeding.html