In the bottom left corner of the window, there is a setting to toggle scale of the window. Set that to "fit".
Add: Hang on.. Are you saying the image is smaller so there is a lot of black around the frame or just that the frame does not fit the window?
If the image is smaller than the frame, and there is a lot of black (not grey), your sequence may be set up to the wrong frame size. To amend this, you may want to create a new sequence set to the right frame size.
Or alternatively if you are working with mixed frame sizes, you can use the "scale to frame size" setting (by right clicking on the clip) to automatically scale the clip to the sequence size.
Be sure that your Sequence settings match your footage by doing this:
Or, right-click a media file and select 'New Sequence From Clip".
How do I choose the right sequence settings?