The error is caused by $X$
, because $
initiates or ends math mode, but the contents of align
is already in math mode.
There's much room for improvements, though.
Avoid align
for a single equation, it's for aligning multiple ones (or parts thereof)
\textbf{Y}
should be \mathbf{Y}
\text{E}
should be \mathrm{E}
, assuming you want the letter to be upright
The letters treatment
are considered a product of several variables; if you want to mean a single multiletter variable, use \mathit{treatment}
*
is never used in mathematics for denoting multiplication
I guess you don't want \sum
, but \Sigma
Avoid redundant braces
Complete example
\documentclass{article}
\usepackage{amsmath}
\begin{document}
\begin{equation}
\mathbf{Y}_{it} =
\alpha + \Sigma_l\beta_l\{t-\mathrm{E}_i=l\}\cdot \mathit{treatment}_i
+ X_{it}\Gamma + \phi_i + \gamma_t + \varepsilon_{it}
\end{equation}
\end{document}

Or, maybe, you want \sum
, but with the subscript on the side. In this case
\documentclass{article}
\usepackage{amsmath}
\begin{document}
\begin{equation}
\mathbf{Y}_{it} =
\alpha + \sum\nolimits_l\beta_l\{t-\mathrm{E}_i=l\}\cdot \mathit{treatment}_i
+ X_{it}\Gamma + \phi_i + \gamma_t + \varepsilon_{it}
\end{equation}
\end{document}

\mathbf
, not\textbf
in the context of math formulas. And\mathrm
, not\text
for a letter you want upright. Alsotreatment
should be\mathit{treatment}
.\sum
and\beta
in curly braces. In fact, encasing\sum
in curly braces is a rather bad idea.