Let a function, $\mathbb{R}^2\to\mathbb{R}: \begin{Bmatrix} \frac{1-\cos(|xy|)}{y^2}&y\neq0\\ \frac{x^2}{2}&y=0 \end{Bmatrix} $
I have to prove this is continious. For y$\neq 0$, this is trivial, but for $y=0$ I use $\epsilon -\delta$ to prove its continious on all points $(x_0,0)$: $$\begin{align}\left|\frac{1-\cos(|xy|)}{y^2}-\frac{x_0^2}{2}\right|<\epsilon&\iff\left|\frac{2\sin^2(|xy|/2)}{y^2}-\frac{x_0^2}{2}\right|<\epsilon\\ &\Leftarrow \left|\frac{|xy|^2}{2y^2}-\frac{x_0^2}{2}\right|<\epsilon\\&\iff\left|\frac{x^2}{2}-\frac{x_0^2}{2}\right|<\epsilon\end{align}$$ And now I'm stuck. I need to get $(x-x_0)^2+y^2<\delta_\epsilon$ which seems impossible. What did I do wrong? When I made it bigger (changing the sine with it's argument), was it a bad move? I'm getting desparate.
First, let me mention a useful preliminary result, and give an outline of the proof.
Claim: If $f:\Bbb R^2\to\Bbb R$ is a function, then $f$ is continuous at $(x_0,y_0)$ if and only if for each $\epsilon>0,$ there is some $\delta>0$ such that if $|x-x_0|<\delta$ and $|y-y_0|<\delta,$ we have $\bigl|f(x,y)-f(x_0,y_0)\bigr|<\epsilon.$
Proof Outline: On the one hand, if (given $\epsilon>0$) such a $\delta$ exists, then put $\delta_\epsilon=\delta,$ and use triangle inequality and a little arithmetic to show that $\bigl|f(x,y)-f(x_0,y_0)\bigr|<\epsilon$ whenever $\sqrt{(x-x_0)^2+(y-y_0)^2}<\delta_\epsilon.$
On the other hand, suppose that $f$ is continuous under the usual definition, so that given $\epsilon>0,$ there is some $\delta_\epsilon>0$ such that $\bigl|f(x,y)-f(x_0,y_0)\bigr|<\epsilon$ whenever $\sqrt{(x-x_0)^2+(y-y_0)^2}<\delta_\epsilon.$ Put $\delta=\frac1{\sqrt{2}}\delta_\epsilon,$ and show that $\delta$ satisfies the description given in the statement of the Claim. $\Box$
As Thomas points out, the implications you found are not correct as written, but I still want to address how one might deal with things if they were correct.
We can't necessarily say $\left|x^2-x_0^2\right|=|x-x_0|^2.$ However, we can observe that $$x^2-x_0^2=(x-x_0)(x+x_0)=(x-x_0)(x-x_0+2x_0)=(x-x_0)^2+2x_0(x-x_0),$$ so by triangle inequality, $$\left|x^2-x_0^2\right|\le|x-x_0|^2+2|x_0|\cdot|x-x_0|.$$ By the Claim, we want to have $|x-x_0|<\delta,$ once we've figured out a $\delta$ that works, so if $|x-x_0|<\delta,$ then we'll have $$\left|x^2-x_0^2\right|<\delta^2+2\delta|x_0|.$$ Since $|x_0|$ is a fixed nonnegative number, then given any $\epsilon>0,$ can you find some $\delta>0$ such that $\delta^2+2\delta|x_0|<2\epsilon$? As a hint, start by finding the zeroes of the following quadratic in $\delta$: $$\delta^2+2\delta|x_0|-2\epsilon^2.$$