I would convert to polars. With $\displaystyle \begin{align*} x = r\cos{ \left( \theta \right) } \end{align*}$ and $\displaystyle \begin{align*} y = r\sin{ \left( \theta \right) } \end{align*}$ this limit is
$\displaystyle \begin{align*} \lim_{\left( x, y \right) \to \left( 0, 0 \right) } \frac{x^2 - y^2}{\sqrt{x^2 + y^2}} &= \lim_{r \to 0} \frac{\left[ r\cos{ \left( \theta \right) } \right] ^2 - \left[ r\sin{ \left( \theta \right) } \right] ^2}{\left[ r\cos{ \left( \theta \right) } \right] ^2 + \left[ r\sin{ \left( \theta \right) } \right] ^2 } \\ &= \lim_{r \to 0} \frac{r^2\cos^2{\left( \theta \right) } - r^2\sin^2{ \left( \theta \right) } }{r^2 \cos^2{ \left( \theta \right) } + r^2 \sin^2{ \left( \theta \right) } } \\ &= \lim_{r \to 0} \frac{r^2 \,\left[ \cos^2{ \left( \theta \right) } - \sin^2{ \left( \theta \right) } \right]}{r^2\,\left[ \cos^2{ \left( \theta \right) } + \sin^2{ \left( \theta \right) } \right] } \\ &= \lim_{r \to 0} \frac{r^2\cos{ \left( 2\,\theta \right) } }{r^2} \\ &= \lim_{r \to 0} \, \cos{ \left( 2\,\theta \right) } \\ &= \cos{ \left( 2\,\theta \right) } \end{align*}$
As the value of this limit changes depending on the path you take (so which angle you approach the origin from) that means the limit does not exist.