Firstly, raw_input gives you a string, so you don't need str(), and you also can remove:
" \n\nPlease dont try medium or hard as they are still in progress"
since it is implemented.
Secondly remove the else above
"# Substraction Calculations"
and bring the whole block's indentation level even with Addition Calculations.
There are a whole number of other improvements possible:
operation = raw_input("\t\t\tAddition (A) or Substraction (S): ").capitalize()
difficulty = raw_input("\tSelect a difficulty - Easy (E)(1-100), Medium (M)(1-200) or Hard (H)(1-500): ").capitalize()
if "A" in operation:
print
print "Addition"
print '** ** **'
print
if "S" in operation:
print
print "Subtraction"
print '** ** ** **'
print
# that allows you to later use, similar for "M" and "H"
if "E" in difficulty:
# rather than the awkward
if difficulty == "Easy" or difficulty == "easy" or difficulty == "E" or difficulty == "e":
There are plenty more problem spots however.
Just work on it, you learn from it, and ultimately the code will look a lot simpler!