I think the location of the quotes are a problem… move entity outside the quotes so you can concatenate the value of the variable to ‘light.’ and ‘input_boolean.’ instead of the string ‘entity’. Also, float() needs a default, and do your future-self a favor and put in the data variable fields so it appears in the Services test tool.
fields:
entity:
description: Entity name (entity_id with domain removed)
example: basement_overhead
step_size:
description: Number of percentage points each step will increase brightness
example: 20
variables:
current_brightness: >
{{ (state_attr('light.'~entity, 'brightness') | float(0) / 2.55) }}
sequence:
- choose:
- conditions:
- condition: template
value_template: >-
{{ current_brightness <= 95 and
is_state('input_boolean.'~entity, 'on') }}
sequence:
- service: light.turn_on
data:
brightness_step_pct: '{{step_size}}'
target:
entity_id: light.{{entity}}