Step 1: Recognize the power series form.
The series \( 1 + \sum_{n=2}^{\infty} (-1)^{n-1} n^2 x^{n-1} \) is a modified power series of the form:
\[
S(x) = \sum_{n=1}^{\infty} (-1)^{n-1} a_n x^{n}.
\]
Step 2: Identify the closed-form of the series.
We recognize that the sum of this series is a standard series expansion, and through analysis and simplification, the closed-form expression of the sum turns out to be:
\[
S(x) = \frac{1 - x}{1 + x^2}.
\]
Step 3: Conclusion.
Thus, the correct answer is \( \boxed{(C)} \).