My impression is that 町 tends to be used for smaller cities and 街 tends to be used for larger ones. Is this correct? If not, what is the difference?


That is correct. According to 文化庁, 町 is similar to town whereas 街 is similar to street or avenue. 街 can also refer to a developed town with lots of streets and avenues, so to say.

For example, you can say センター街 (center-gai), but not センター町 (center-cho). This is because センター街 refers to "streets with small businesses". If there was a センター町, hypothetically speaking, a Japanese would imagine some area where small businesses are scattered here and there, rather than an area with a few streets with small businesses packed together.

Hence the different usage.

  • A gai is a more populated business district area with specialized services for example, Wall Street, with numerous financial institutions. A cho is a town, and provides municipal and generalized services.
    – Jack Bosma
    Oct 31 '16 at 10:41

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