The fight response in a dog can be very strong and if the flight response (running away), has not worked in the past/is not possible because the dog is on lead then they will use this technique in an attempt to repel another dog. If a dog learns that barking and lunging, in the past gets something to move away then they are likely to repeat it.. as doing so makes them feel safe. Feeling safe is very rewarding so they will use this behaviour.. it works! 

The amygdala is a part of the brain that is often called the fear centre of the brain and is apart of alot of emotional expression. Through identifying triggers and working at them within your dogs threshold and changing the association with them, emotions can change. By changing emotions, motivations change (i.e fear can result in behaviours such as lunging in an attempt to say leave me alone.

I've attached some body language guidance above..