When talking about sheep and lambs, people often use the terms interchangeably, but they actually refer to two different things. Sheep are adult animals, either male or female, while lambs are the young of either gender (under one year of age).
The most obvious difference between sheep and lambs is size. Lambs are much smaller than sheep and have shorter, softer wool. Lambs also tend to be much more energetic than adult sheep. The diet of a lamb also differs from that of sheep - lambs usually feed on milk, while sheep feed on grass and other vegetation.