So I have to prove $\lim\limits_{x \to 2} \frac{x-1}{x^2}$= $\frac{1}{4}$.
So I need to find $0<|x-2|<\delta$, such that $\left\vert\frac{x-1}{x^2}-\frac{1}{4}\right\vert<\epsilon$.
So $\left\vert\frac{x-1}{x^2}-\frac{1}{4}\right\vert=\frac{(x-2)^2}{4x^2}$.
Now I try to set $\delta=1$, so $0<|x-2|<1$ and $4<4x^2<36$.
And so $\frac{(x-2)^2}{4x^2}<\frac{(x-2)^2}{4}$.
And so $\frac{(x-2)^2}{4}<\epsilon$, when $\delta=\sqrt{4\epsilon}$.
Looks good, because you can use $\color{blue}{4<4x^2}<36$ to say: $$|f(x)-L|=\frac{(x-2)^2}{4x^2} \le \frac{(x-2)^2}{4}$$ And since $|x-2| < \delta$, this means: $$\frac{(x-2)^2}{4} < \frac{\delta^2}{4}$$ You want this under $\varepsilon$, so: $$\frac{\delta^2}{4} < \varepsilon \iff \delta < 2\sqrt{\varepsilon}$$ Note that you know require $\delta \le \min\left\{ 1,2\sqrt{\varepsilon} \right\}$.
Coming back to the '<' vs '=' (see comments as well): if you set $\delta = 1$ along the way and you end up with requiring $\delta = 2\sqrt{\varepsilon}$, note that you need the strongest (i.e. smallest) bound on $\delta$.
If you have a good $\delta$, any $\delta' < \delta$ will work as well; which is why you'll often see $\delta$ taken to be smaller than (or equal to) all the upper bounds you set / need in your proof.