I don't know if we know for sure why O. Henry called this story Witches Loaves. What we do know is that he chose the titles for his stories very carefully and they all represented an important idea in the story itself.
Perhaps O. Henry was thinking of another story when he wrote this - the fairy tale of Hansel and Gretel. In folklore, witches often used food to lure people into their traps. The witch in Snow White used an apple, the witch in Hansel and Gretel used candy. In this story, the "witch" is Miss Martha. Why is she a witch? She thinks she is a kind woman who feels sorry for a starving artist. Week after week, she eats rich food but never offers any to her customer. She wishes he would notice her, but she tells herself he is too proud. She does everything she can to entice him into a conversation with her. She hangs up a painting, she wears a fancy dress, she puts goop on her face to make her skin look good. Finally, she uses food - she puts butter into the two stale loaves of bread, thinking she is giving her poor starving artist customer a treat. Now he will think of her when he eats the stale bread. Perhaps he will ask her to tea. Alas. Her plan backfires. He has been buying the bread to use as an eraser for his drawings. He is a draftsman. The buttered bread has ruined his drawings. In typical O. Henry style, there is a surprise ending. The loaves turn from something good into something "witchy".
Of course, the title could mean something totally different, but that is my idea.
Maybe some other teacher has some specific information, but when I checked, I could not find anything so it is up to us to figure it out. What do you think?