But it's always confused me about the Bretons. I get that this is the accepted lore, but if that's the case how come the Breton race was born? I thought they were the result of interbreeding between elves and humans.
There are no "Half-breeds"... but I don't think it's 100% conversion either. Likely, the father passes on 1-10% of his racial qualities: Hardly noticable within the first few generations. But, over hundreds or thousands of years of interbreeding, the compounding interracial qualities create a distinct race.
Also known as Ayleids, if I'm not mistaken
You are mistaken. Altmer and Aldmer are the same race, just as Nords and Nedes are the same race. The reason the names changed is because of millenia of evolution (Whether magical or mundane).
"Nede" is to "Nord" and "Aldmer" is to "Altmer" is like how "Dog (
Canis Lupus Familiarus" is to "Wolf
Canis Lupus" - All breeds of Dogs are evolved from Wolves, yet we still have Wolves.