dec2bin(n,m) returns the binary representation of n as a string of m characters, with leading '0'-s as needed. When you assign a number to the variable h1 (e,g, h1 = 2) you tell Matlab that h1 is an array of doubles. The element h1(p) can then only hold a single double. You then try to assign a string of two or more characters to this element, which results in an error.
I fail to see the logic in what you are trying to do, but I have modified your code to give the result you specify. Instead of using indices in the character array huff (e.g. huff(j)) I extend it by concatenating more characters at the end. Note that your variables p, z, and j all take the same value as i, so they are superfluous.
input = [ 1 7 6 ];
huff = [];
for i=1:length(input)
if input(i) < 3 %level1
k = 1; %dec
h1 = dec2bin(0,1);
t = input(i)-k ;
t1 = dec2bin(t,1);
elseif input(i) < 7 %level2
k = 3;
h1 = dec2bin(2,2);
t = input(i)-k ;
t1 = dec2bin(t,2);
elseif input(i) < 15 %level3
k = 7;
h1 = dec2bin(6,3);
t = input(i)-k ;
t1 = dec2bin(t,3);
end
huff = [huff h1 t1];
end
disp(huff)
