With \(|x-y|<\varepsilon^2\) we get \(|\sqrt x-\sqrt y|\le\sqrt{|x-y|}<\varepsilon\). With \(\delta=\varepsilon\) we only reach \(\sqrt\varepsilon\), which exceeds \(\varepsilon\) when \(\varepsilon<1\). Note \(\sqrt x\) is not Lipschitz near \(0\), yet it is uniformly continuous.
A function \(f\) is uniformly continuous on a set \(A\) if for each \(\varepsilon>0\) there is a \(\delta>0\), valid for all points at once, that controls \(|f(x)-f(y)|\) by \(|x-y|\) in \(A\).