I know that $\lim_{(x,y)\to(0,0)}\frac{xy}{x^2+y^2}$ cannot exist because taking $x=y$ and $x=-y$ gives me two different values for the limit.
However, I can also write the following:
$$|\frac{xy}{x^2+y^2}| \leq |xy|$$
This seems to suggest that the limit does exist because $|xy|\to 0$ as $(x,y)\to(0,0)$. Can someone explain what is happening here?
Your inequality is wrong because near $(0,0)$, $x^2 + y^2$ is less than $1$.