While it has, in some essence, the key realizations, I don't think this constitutes a complete proof.
Your goal is to show that, provided $(x_n)$ is Cauchy, that it converges.
What does it mean for $(x_n)$ to converge, though? It means - in this space - that there is some $x \in \mathbb{N}$ such that $d(x_n,x) \to 0$ as $n \to \infty$.
Showing that $d(x_m,x_n) \to 0$ doesn't help anything -- in fact, you're already assuming that at the start, so you've not shown anything. (Especially considering that there exist Cauchy sequences which are not convergent in some spaces.) You need to find a prospective limit of the sequence -- and then prove, indeed, that it is the limit.
You have made the key realization that, if at any point in the sequence, we have $x_m \ne x_n$, then $d(x_m,x_n) > 1$. Consequently, there has to be some integer $N$ beyond which this stops, in the sense that $d(x_m,x_n) = 0$ for $m,n \ge N$ (because the sequence is supposed Cauchy).
The questions remain, then:
- Why can I immediately say that $d(x_m,x_n) = 0$ and not just $d(x_m,x_n) \le 1$? (Pull back to your definition of $d$.)
- What does this imply for the sequence $(x_n)$ and its behavior? (Try playing with a few examples of sequences.)
- Consequently, what does this imply the limit of $(x_n)$ should be? And what is the proof that this limit is, indeed, the limit?