Although they can surely mate and create offspring, the offspring often have health issues or deformities. Just like inbreeding in humans, the limited gene pool causes originally small problems to become more potentially harmful. With more and more generations of inbreeding, the issues and deformities worsen.
They will generally have puppies, but these puppies will be inbred. Some inbred dogs will be fine, but the majority of them will have increased genetic problems, like eye and ear problems and bone problems like hip dysplasia. Sometimes these dogs will have brain damage that can make them unpredictable.