Can someone suggest a proof using generating functions? if possible
$$\sum_{k=0}^n {n \choose k}{k \choose m} = {n \choose m}2^{n-m} $$
Moreover, do both sides of the equation count the number of subsets of $n-m$ elements out of $n$ elements?
Thanks in advance.
What the sides count is a bit more complicated than "The number of subsets of $n-m$ elements". First note that because of the $\binom{k}{m}$, the sum on the left side might as well be $\sum_{k = m}^n$. From there the combinatorial argument goes a bit like this:
Right hand side: Out of $n$ (distinguishable) balls, pick $m$ of them and set aside. With the rest, paint each one either red or blue.
Left hand side: Out of $n$ balls, pick $k$ to put aside, and paint the rest blue. Now from the $k$ balls put aside, pick $m$, put them aside, and paint the rest red.
All in all, what they count is the number of ways to pick out $m$ balls that are not painted, and then paint the rest of the balls either red or blue.