Here is my interpretation of a solution to this problem.

Perform a $90^{\circ}$ clock-wise rotation around the point $D$ and let $K$ be the image of $E$ under this rotation. Then, the triangle $DCK$ is the $90^{\circ}$ clock-wise rotated image of triangle $DAE$. Therefore, $DE = DK$ and $DE \, \perp \, DK$. Let the line through point $K$ and parallel to $DE$ intersect the line through point $E$ and parallel to $DK$ at the point $L$. Then $DELK$ is a square (it is a rectangle and $DE = DK$). The points $F$ lies on $EL$ because both $EF$ and $EL$ are perpendicular to $DE$ at the same point $E$. Let $J$ be the intersection point of the lines $EF$ and $AD$. The quad $DJFK$ is a parallelogram because $JF \, || \, DK$ and $DJ \, || \, KF$. Hence $$JF = DK = EL = x + y$$ which yields $$JE = FL = y$$ Denote by $M$ the intersection point of the lines $DC$ and $KL$. Because, by the $90^{\circ}$ degree rotation around $D$, the line $DA$ is rotated to the line $DC$ and the line (not the segment) $LE$ is rotated to the line $KL$, the unique intersection point $J$ of the lines $DA$ and $LE$ is rotated the the unique intersection point $M$ of the lines $DC$ and $KL$, which means that the segment $EJ$ is rotated to the segment $KM$ and therefore $$KM = JE = FL = y$$ However, by assumption, $EF = EH = x$ because $EFGH$ is a square, which means that $$DH = DE - EH = (x + y) - x = y$$
Therefore, $$DH = y = KM \,\,\,\text{ and } \,\,\, DH \, ||\, KM$$ Consequently, $DHMK$ is a parallelogram with $\angle \, HDK = 90^{\circ}$ so it is a rectangle. Hence, $HM$ is perpendicular to $DE$. But, by assumption $HG$ is also perpendicular to $DE$ at the same point $H$, so $G$ lies on the segment $HM$. Because $EFGH$ is a square, $FLMG$ is a rectangle and hence $$MG = LF = y = KM$$ Now, if we denote by $P$ the intersection point of $BC$ and $HM$, we can deduce the fact that the triangles $KMP$ and $MGN$ are congruent because both are right-angled and $\angle \, GMN = \angle\, MKP$ (or you can argue that you can rotate $MGN$ into $KMP$ by a $90^{\circ}$ clock-wise rotation around the center of the smaller square of edge-length $y$ that they are inscribed in). Therefore, $$MP = GN = \sqrt{5}$$ Furthermore, if you look at the pair of triangles $DHI$ and $KMC$ you can see that they are also congruent (in fact they are translates of each other) because they are both right-angled, $DH = KM = y$ and $\angle \, HDI = \angle\, MKC$. Hence, $$MC = HI = 2$$ Now, by applying Pythagoras' theorem to the triangle $CMP$ we can calculate that $$CP = \sqrt{MP^2 - MC^2} = \sqrt{(\sqrt{5})^2 - 2^2} = \sqrt{5 - 4} = 1$$
But then, since the triangles $CMP$ and $MKP$ are similar
$$\frac{MK}{MP} = \frac{CM}{CP} = \frac{2}{1} = 2 \,\,\,\text{ that is } \,\,\, MK = 2 \, MP = 2\, GN = 2\sqrt{5} = y$$
However, $FL = MK = 2 \sqrt{5} = 2 \, MP$ and since $MP$ and $FL$ are parallel, this is possible if and only if $M$ is the midpoint of the segment $KL$. But since $DELK$ is a square and $MH$ is perpendicular to $DE$, the point $H$ is correspondingly the midpoint of $DE$ and thus
$$EH = HD = MK = 2\sqrt{5}$$