Step 1: Apply integration techniques.
We use the substitution \( x = \tan(\theta) \), so \( dx = \sec^2(\theta) d\theta \). The limits change accordingly, and we integrate the resulting expression:
\[
\int_0^1 \frac{x^2}{1 + x^2} dx = \int_0^{\frac{\pi}{4}} \tan^2(\theta) d\theta
\]
Step 2: Simplify the result.
After evaluating the integral, we find:
\[
\int_0^1 \frac{x^2}{1 + x^2} dx = 1 - \frac{\pi}{4}
\]
Step 3: Conclusion.
The correct answer is (B) \( 1 - \frac{\pi}{4} \).