I am learning how to use exclusion-inclusion principle (PIE). I wish to find the probability that a random permutation of $1112345$ does not have adjacent digits like for example $1121345$ and $2345111$ are not allowed.
There are $\frac{7!}{3!}=840$ possible permutations.
I think the probability can be calculated using the principle of inclusion-exclusion:
$$ \begin{align} P(\text{does not have adjacent 1s})&=1-P(\text{have at least a pair of adjacent 1s}) \\&= 1-P(\text{have sequence 11 OR have sequence 111}) \\&= 1-(P(\text{have sequence 11})+P(\text{have sequence 111})-P(\text{have sequence 11 AND have sequence 111})) \end{align} $$
Is that the correct application of PIE?
I know how to calculate $P(\text{have sequence 11})$ and $P(\text{have sequence 11})$ but I am not sure how to calculate $P(\text{have sequence 11 AND have sequence 111})$.
It's a correct application of P.I.E., but not a useful one. The problem is that if your permutation contains $111$, it certainly also contains $11$. So you end up simplifying to $1 - P(\text{has }11) + P(\text{has }111) - P(\text{has }111)$ or just $1 - P(\text{has }11)$, which is what you started with.
A more profitable approach is to label the $1$'s to distinguish them: $1_a 1_b 1_c 2345$. Then do inclusion/exclusion on the three events "$1_a$ and $1_b$ are adjacent", "$1_b$ and $1_c$ are adjacent", and "$1_a$ and $1_c$ are adjacent".
Call these events $A_{ab}, A_{bc}, A_{ac}$ respectively. Then we want to find \begin{align} P(\text{no adjacent 1's}) &= 1 - P(A_{ab} \text{ or } A_{bc} \text{ or } A_c) \\ &= 1 - P(A_{ab}) - P(A_{bc}) - P(A_{ac}) \\ & \quad + P(A_{ab} \text{ and } A_{bc}) + P(A_{ab} \text{ and } A_{bc}) + P(A_{ac} \text{ and } A_{bc}) \\ & \quad - P(A_{ab} \text{ and } A_{bc} \text{ and } A_{ac}) \\ &= 1 - 3 P(A_{ab}) + 3 P(A_{ab} \text{ and } A_{bc}) \end{align} where the last line follows by symmetry (plus the fact that $1_a, 1_b, 1_c$ cannot all be adjacent to each other).
Here, $P(A_{ab}) = \frac{2 \cdot 6!}{7!} = \frac27$: if $1_a$ and $1_b$ are adjacent, we can treat them as one symbol $[1_a 1_b]$, so there are $6!$ ways to order the $6$ symbols we now have, and then $2$ ways to choose the order of $1_a$ and $1_b$. We can compute $P(A_{ab} \text{ and }A_{bc})$ similarly.