The offspring tend to have some degree of their human parent's intelligence, as well as half of their soul. If they're lucky, they will be able to create their own species like the centaurs, the naga, the merpeople, and the harpies have. That's what the flying centaurs and the new winged goblins are trying to do at the moment.

Those who don't have magic or aren't magic are referred to as Mundanes. Occasionally, a mundane will be able to develop a magic talent if they stay in Xanth long enough, though.