Lactose is a "milk sugar" and is a complex sugar. It is available commercially spray-dried and in crystalline form. There are many advantages to using it in various baking applications:
Because of its low sweetening value compared to sucrose, it can lend texture and create browning while keeping the sweetness level at low values, which many consumers prefer. It can be used to replace sucrose up to a 50% level, or replace it entirely in products like pie pastry. Lactose improves dough handling properties and the color of the loaf.
In pie crusts, it gives good color to top and bottom crusts, more tender crusts, and retards sogginess. In machine-dropped cookies, lactose can help the dough release better from the die. In cakes and muffins, it gives body without excessive sweetening and improves volume. Lactose binds flavors that are normally volatile and thus intensifies or enhances flavor.