I first came across this problem on http://nrich.maths.org/ and have tried to solve it myself. Here is what I did (may seem laughable to those who know the answer!):
Let $a = x+y$ and $b=1+xy$
I figured that to prove $x+y<1+xy$ to be correct, I need to find an equation which will allow me to plot a graph, $d = b-a$, showing that $b - a$ approaches 0, but never touches it. This is where I am stuck and don't know how to proceed. Presumably, if my method has been correct so far, I need to simplify it in some way so that there is one variable only.
(I haven't really been taught anything like this at school but since I want to study maths later on, I figured it may be helpful to try some challenging questions like this. This seemed fairly easy at first, but can't get my head around it, so any helpful answer which I can learn from is greatly appreciated.)