On the program’s window, click “Splitting and Recording Options” tab:
In the “Recording Device” area, click “Set recording device”:
New window appears. Make sure that “Stereo mix” or “What U Hear” is selected, then click “Playback” tab:
Select “Speakers”, then click “Properties”. In the new window, switch to “Levels” tab:
On the screen shot above you can see that microphone’s volume is 100%, but the device is off. Turn it on, if you want to mix sound from microphone with other sounds. Note that you (and your microphone) will hear your own voice through speakers, which may produce multiple echoes, if microphone is too close to speakers, or just if the volume is too high.
If you don’t intend to mix sound, just disable the microphone here and enable it as a single recording device.