Question: What is the value of xy?
To answer this question, we need either values for x and y individually, or simply a value for the product xy.

(1) y = x + 1
This gives us y in terms of x, but cannot give us the value of xy. Insufficient.

(2) y = x^2 + 1
This gives us y in terms of x^2, but cannot give us the value of xy. Insufficient.

(1) and (2) together
We know the rule that we need 2 equations to solve for the values of 2 variables... but be careful! Even exponents can give us multiple possible values. Let's see what happens when we try to solve:
y = x + 1
y = x^2 + 1
x + 1 = x^2 + 1
x = x^2
x = either 1 or 0
Thus, y = either 2 or 1

Since we have 2 possible sets of values that would give us different values for xy, this is insufficient to answer the question.

The answer is E.

For more on how the GMAT subverts our expectations of the 2 equations / 2 variables rule, see:
https://www.manhattanprep.com/gmat/blog ... ons-rules/