Learn German: Ich kaufe zwei Brötchen. - I am buying two bread rolls.

In German, nouns ending in -chen (which are used for little versions of things) do not add an extra ending for the plural. One bread roll is ein Brötchen, and two bread rolls are zwei Brötchen.

Does Brötchen literally mean little bread?

Yes! Adding -chen to the end of a word makes it smaller. The base word is Brot (bread). When you add -chen, the vowel gets an umlaut, giving us Brötchen (bread roll). Because it ends in -chen, it is automatically a neuter noun (das Brötchen).

Why does the German sentence just say kaufe instead of having a word for am buying?

German does not have a separate continuous tense like English does. Ich kaufe translates to both I buy and I am buying depending on the context. You do not need an extra verb to translate am here.