These two seem very similar. What are the major differences between the two? For example, in the following sentence,
Substitute the lesser punishment for the greater one.
Can one use "less" instead of "lesser" here?
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Less refers to quantity, lesser refers to quality.
Your sentence could be rephrased as "substitute less punishment for more punishment." Here we are saying that the amount of punishment is smaller. But if you say "substitute the lesser punishment" you are saying the type of punishment is not as severe.
One way to look at it, then, is that less refers to an amount of something that need not be compared to anything else, whereas lesser refers to the thing itself in comparison to something else (which need not be explicitly named).