We have that by $x-y =t \to 0^+$ the given limit reduces to
$$\lim_{(x,y)\to(1,1)} \frac{(x-y)^{(x-y)}} {(x-y)}=\lim_{t\to 0^+} \frac{t^t} {t}\to \infty$$
indeed the points $(x-y)<0$ are not included within the domain of definition for the function that is $$D=\{(x,y)\in\mathbb{R^2}:x-y>0\}$$
Refer also to the related
Edit for a remark
As noticed by Jyrky Lahtonen in the comment "some sources would insist that for the limit to exist the function should be defined in a punctured neighborhood of $(1,1)$. Other sources would never worry about points outside the domain of definition, in which case you are restricted to the half-plane $x>y$".
That important issue has been deeply discussed here
My observation is that not all sources have to be considered at the same level. Using the first definition is a reasonable way to deal with limits at a lower (high school) level whereas, in a more advanced context, the second more general definition (according to Rudin) should be adopted.
Moreover, note that, according to the first definition, the discussion of limits would reduce, as in the present case, to a (more or less) trivial determination on the domain of definition for functions which is of course a very different topic.
Therefore, when we deal with limits, I strongly suggest to refer to the more general definition excluding points outside the domain of definition for the function considered.