I am reading about the multinomial theorem here
How do I read the summation notation in this line:

Also, can someone please show me how to apply it to the following expansion:
$$\left( x-\frac{x^2}{2}+\frac{x^3}{3}-\frac{x^4}{4}\right)^4$$
I am not sure how to map the notation into the actual expression.
The multinomial notation means that this is the sum over all possible values $i_1,i_2,\dots, i_n$ for which $i_1+i_2+\dots +i_n=N$ holds. This means that, for $n=2$ and $N=3$, you have the values $0,3$, $1,2$ $2,1$ and $3,0$, meaning that the sum in this case would contain the sumands $$\frac{3!}{3!0!}x_1^3x_2^0+\frac{3!}{2!1!}x_1^2x_2^1 + \frac{3!}{1!2!}x_1^1x_2^2+\frac{3!}{0!3!}x_1^0x_2^3. $$
In your case, you have $N=4$ and $n=4$, so you have some more combinations, namely $34$. This gives you $34$ different values to sum up. It's a mess, but doable.
The $34$ combinations are: $(4,0,0,0)$, $(0,4,0,0)$, $(0,0,4,0)$ and $(0,0,0,4)$ to begin with, then all possibilities of $4=3+1$, of which there are $12$:
then all possibilities for $4=2+1+1$, again there are $12$ of them:
and another $6$ possibilities for $4=2+2$:
Edit: One last possible way of writing $4$ as a sum of $4$ integers is of course $4=1+1+1+1$, yielding a total of $35$ possible ways.