The holes in Swiss (and its unique flavor) exist thanks to three strains of bacteria: S. thermophilus, Lactobacillus and P. shermani, when mixed with cow's milk and left to ripen, release and consume lactic acid:

That bacteria, more specifically P. shermani, releases carbon dioxide when it consumes the lactic acid and forms bubbles. The bubbles don't just disappear, they form little air pockets, resulting in the holes of the Swiss cheese. The size of the holes can be controlled by cheese makers through the acidity, temperature and maturing time, which is why it's possible to have a baby Swiss and regular Swiss option.

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Photo by Rusty Clark