Bleached Bones are often found easily in the Dragonfire Peaks, the rocky land of lava and stone. The bones can be found as a block of Dragons skull with a sword on it, loot it by hitting it with your weapon or run it over with your mount.
This item can be used for gardening or crafting mounts. But most important thing it’s used for is Bone Dragon Souls made at the dragon crucible at the hub.
Some people recommend the Cursed Vale for bone farming.