Don't use $$ for display math.
\displaystyle is not needed.
Option -1:
\documentclass{article}
\usepackage{amsmath}
\begin{document}
[
P(Y_i = j) = \left{
\begin{array}{ll}
\frac{1}{1+\sum_{k=1}^{K-1}e^{\beta_k\cdot x_i}} & \quad k=K \[1em]
\frac{e^{\beta_j\cdot x_i}}{1+\sum_{k=1}^{K-1}e^{\beta_k\cdot x_i}} & \quad 1 \leq k \leq K-1
\end{array}
\right.,
]
\end{document}

Option - 2
You can use cases.
\documentclass{article}
\usepackage{amsmath}
\begin{document}
[
P(Y_i = j) = \begin{cases}
\frac{1}{1+\sum_{k=1}^{K-1}e^{\beta_k\cdot x_i}} & \quad k=K \[1em] %%% <--- here
\frac{e^{\beta_j\cdot x_i}}{1+\sum_{k=1}^{K-1}e^{\beta_k\cdot x_i}} & \quad 1 \leq k \leq K-1
\end{cases}
]
\end{document}
In either case, you can use \\[<dimen>] to change the vertical separation.
Beautification
To make your sums to look less cramped, you can use \limits as in
\sum\limits_{k=1}^{K-1}
Code:
\documentclass{article}
\usepackage{amsmath}
\begin{document}
[
P(Y_i = j) = \begin{cases}
\frac{1}{1+\sum\limits_{k=1}^{K-1}e^{\beta_k\cdot x_i}} & \quad k=K \[2em]
\frac{e^{\beta_j\cdot x_i}}{1+\sum\limits_{k=1}^{K-1}e^{\beta_k\cdot x_i}} & \quad 1 \leq k \leq K-1
\end{cases}
]
\end{document}

casesenvironment, as described in How to write conditional equations with one-sided curly brackets – yo' Dec 11 '13 at 13:15$P(Y_{i=j})$? I've just never seen notation such as it is currently (with my limited exposure). – Sean Allred Dec 11 '13 at 13:26