Your base case is essentially correct, although I would prefer to see the justification that both sides are equal to $1$. In step 2, your assumption should be $$\sum_{i = 0}^{k} \binom{k}{i} = 2^k$$ since you must show that $P(k + 1)$ holds whenever $P(k)$ holds. In step 3, the statement
$$\sum_{i = 0}^{k + 1} \binom{k + 1}{i} = \sum_{i = 0}^{k} \binom{k}{i} + \binom{k + 1}{k + 1}$$ is false. Furthermore, if $k$ is a positive integer, $2^{k + 1} = 2 \cdot 2^k = 2^k + 2^k > 2^k + 1$.
An induction proof is provided below:
Proof. Let $P(n)$ be the statement that
$$\sum_{k = 0}^{n} \binom{n}{k} = 2^n$$
Let $n = 0$. Then
$$\sum_{k = 0}^{0} \binom{0}{k} = \binom{0}{0} = 1 = 2^0$$
Hence, $P(0)$ holds.
Since $P(0)$ holds, we may assume there exists a nonnegative integer $m$ such that $P(m)$ holds. Then
$$\sum_{k = 0}^{m} \binom{n}{k} = 2^m$$
Let $n = m + 1$. We must show that $P(m) \Rightarrow P(m + 1)$.
\begin{align*}
\sum_{k = 0}^{m + 1} \binom{m + 1}{k} & = \binom{m + 1}{0} + \sum_{k = 1}^{m} \binom{m + 1}{k} + \binom{m + 1}{m + 1}\\
& = 1 + \sum_{k = 1}^{m} \binom{m + 1}{k} + 1\\
& = 1 + \sum_{k = 1}^{m} \left[\binom{m}{k} + \binom{m}{k - 1}\right] + 1 & \text{by Pascal's Identity}\\
& = 1 + \sum_{k = 1}^{m} \binom{m}{k} + \sum_{k = 1}^{m} \binom{m}{k - 1} + 1\\
& = 1 + \sum_{k = 1}^{m} \binom{m}{k} + \sum_{j = 0}^{m - 1} \binom{m}{j} + 1 & \text{where $j = k - 1$}\\
& = \binom{m}{0} + \sum_{k = 1}^{m} \binom{m}{k} + \sum_{j = 0}^{m - 1} \binom{m}{j} + \binom{m}{m}\\
& = \sum_{k = 0}^{m} \binom{m}{k} + \sum_{j = 0}^{m} \binom{m}{j}\\
& = 2^m + 2^m & \text{induction hypothesis}\\
& = 2 \cdot 2^{m}\\
& = 2^{m + 1}
\end{align*}
Since $P(0)$ holds and $P(m) \Rightarrow P(m + 1)$ for each nonnegative integer $m$, $P(n)$ holds for all nonnegative integers.$\blacksquare$
Note. The binomial coefficient $$\binom{n}{k}$$ represents the number of subsets of size $k$ that can be selected from a set of size $n$. Thus, the summation $$\sum_{k = 0}^{n} \binom{n}{k}$$ counts the number of subsets of a set with $n$ elements. There are $2^n$ such subsets since a subset is determined by the decision of whether or not to include each of the $n$ elements.
$$\sum_{k=0}^n {n \choose k} = 2^n$$
and try to prove that
$$\sum_{k=0}^{n+1} {n+1 \choose k} = 2^{n+1}.$$
Usually, to make the inductive hypothesis helpful, you have to make the desired statement look more like the inductive hypothesis itself. One way your statements differ is that the ranges of summation are different. We can fix that: ${n+1\choose n+1}=1$, so
$$\sum_{k=0}^{n+1} {n+1 \choose k} = 1+\sum_{k=0}^n {n+1 \choose k}.$$
But now you need to do something to make ${n+1 \choose k}$ "look like" ${n \choose k}$ when $k \leq n$.
– Ian Nov 08 '15 at 22:24