A woman of wealth, of station, or of rank. Verstegan says, “It was anciently written Hleafdian [? hlæfdige], contracted first into Lafdy, and then into Lady. Laf or Hláf (loaf) means food in general or bread in particular, and dig-ian or dug-an, to help, serve, or care for; whence lady means the `bread-server.' The lord (or loaf-ward supplied the food, and the lady saw that it was properly served, for the ladies used to carve and distribute the food to the guests.”
Another etymology is Hláf-weardie and loaf-wardie, where ie stands for a female suffix like—ina ine; as Carolus, female Carol-ina, or Carol-ine; Joseph, Joseph-ina or Joseph-ine; Czar, Czar-ina, etc. etc.
Source: Dictionary of Phrase and Fable, E. Cobham Brewer, 1894
More on Lady from Infoplease: