Step 1: Concept
Shortest distance occurs along the common normal, where the tangent to $x=y^2$ is parallel to $y-x=1$ (slope $= 1$).
Step 2: Meaning
Curve $x=y^2 \implies \frac{dx}{dy} = 2y \implies \frac{dy}{dx} = \frac{1}{2y}$.
Step 3: Analysis
Set $\frac{1}{2y} = 1 \implies y = 1/2$.
Then $x = (1/2)^2 = 1/4$. Point $P(1/4, 1/2)$.
Distance from $P(1/4, 1/2)$ to $x - y + 1 = 0$ is $d = \frac{|1/4 - 1/2 + 1|}{\sqrt{1^2 + (-1)^2}}$.
$d = \frac{|3/4|}{\sqrt{2}} = \frac{3}{4\sqrt{2}} = \frac{3\sqrt{2}}{8}$.
Step 4: Conclusion
The shortest distance is $\frac{3\sqrt{2}}{8}$.
Final Answer: (A)