In order to prove that $\lim_{x\to a}f(x)=g$ we have to show that the value $\Delta(x)=|f(x)-g|$ is arbitrarily small provided $|x-a|$ is sufficiently small. Here we take any $\varepsilon$ and we have to show the existence of such $\delta>0$ that $\Delta(x)=|x-1||x+1|<\varepsilon$ provided $|x-1|<\delta$.
As I said, our goal is to find some $\delta$, not necessarily the best (the largest) one. We know that if some $\delta$ is good then smaller is also good. Therefore we can always restric our search for $\delta$ to the set $(0,1)$, that is we can always assume that $\delta<1$ and look what it implies. In our case this implies that $0<x<2$. This makes the second factor $|x+1|$ bounded by $3$. This makes our task a lot easier.
This technique is what I call the method of small and bounded factors. It consists in finding in each summand the factor that is small and a factor that is bounded. For example in our case $|x-1||x+1|$ the first factor is small (it can be arbitrarily small for $x$ close to $1$) and the second factor is bounded (by 3). The idea is that if $a$ is smaller than $\delta$ and $b$ is smaller than a fixed value $M$ then if we take $\delta \leq \varepsilon/M$ then $ab<\varepsilon$. Of course this doesn't give you the optimal (largest) possible value of $\delta$ but let you avoid problems with nonlinear inequalities.
To be more precise that I mean by problems with nonlinear inequalities, let's try another approach: $$\Delta(x)=|x-1|\cdot|x+1|\leq |x-1|\cdot||x-1|+2|.$$ If $|x-1|<\delta$ then $\Delta(x)<\delta(\delta+2)=\delta^2+2\delta$. This is a nonlinear inequality and we wouldn't like to be forced to solve such inequalities (in more difficult cases they can be much more complicated). Instead we factorise $\Delta(x)$ and divide our problem of finding $\delta$ into two parts. First we force $\delta$ to be just not greater than $1$. Then the second factor $\delta+2\leq 3$. Now, we see that $\Delta(x)<\delta\cdot 3$. In order to get $\Delta(x)<3$ it's sufficient to consider $\delta\leq \varepsilon/3$. So in order to make both the inequalities
$$\Delta(x)<3\delta\leq \varepsilon$$ we can take any $\delta$ that satisfies both the inequalities $\delta\leq 1$ and $\delta\leq \varepsilon/3$. Now we see that it sufficies to take the minimum of these two.
I would like to show this method in a bit more sofisticated example. We'll show that $$\lim_{x\to 1}\frac{x+5}{4-x^2}=2.$$ Let's assume that $|x-1|<\delta$ where $\delta$ is a constant that will be defined later. Let's calculate $\Delta$:
$$\Delta(x)=\left|\frac{(x-1)(2x+3)}{(2-x)(2+x)}\right| < \delta\cdot\frac{|2x+3|}{|2-x||2+x|}.$$ We managed to extract the small and the bounded factor. In order to make $\Delta$ small we need to find the upper bound of $|2x+3|$ and lower bound of $|2-x|$ and $|2+x|$.
- First we assume that $\delta\leq 1$. Then $|2x+3|=|2(x-1)+5|< 2\delta+5<7$.
- Now we have to be far away from $2$ and $-2$. Therefore we assume that $\delta\leq 1/2$. Then
$$|2-x|=|1-(x-1)|\geq 1-|x-1|>1-\delta\geq 1/2,\\
|2+x|=|3+(x-1)|\geq 3-|x-1|>3-\delta\geq 5/2.$$ These bounds are well seen on the axis.
Now we see that $$\Delta(x)<\delta\cdot \frac{7}{\frac 12\cdot \frac 52}=\frac{28}{5}\delta.$$ Therefore $\Delta(x)<\varepsilon$ if $\delta\leq \frac 5{28}\varepsilon$.
The last thing to do is to find what restrictions do we put on $\delta$ so that all the inequalities hold. There are:
$$\delta\leq 1,\quad \delta\leq \frac 12,\quad \delta\leq \frac 5{28}\varepsilon.$$
Therefore we can put $$\delta:=\min\left\{1,\frac 12,\frac 5{28}\varepsilon\right\} = \min\left\{\frac 12,\frac 5{28}\varepsilon\right\}.$$