I have come to find that "mal-" makes something the opposite. I also came across "pli" and "plej."

The word "granda" means "big," so "pli granda" means "bigger" and "plej granda" means "biggest." If you add "mal-" you get "malgranda" or "small."

Now let's say you want to say "smaller" or "smallest." Should you say "pli malgranda" or "malpli granda?" The first seems to say "MORE-SMALL" while the second appears to say "NOT-MORE-BIG."

This is confusing me and I would like to know the proper way to use these combinations.

Look at this page if you must; I got these questions while reviewing it.
http://en.lernu.net/lernado/gramatiko/konciza/komp...

smaller - pli malgranda
smallest - plej malgranda

less large - malpli granda
least large - malplej granda

Remember that mal does NOT mean "not". It means "opposite". So pli malgranda doesn't mean "more not big", it means "more opposite-of-big"

And so "less small" is "malpli malgranda" and "least small" is "malplej malgranda?"

Foreigner:And so "less small" is "malpli malgranda" and "least small" is "malplej malgranda?"

Exactely. Chapeau!