Well, to record all sound coming from your soundcard, you need something called Stereo Mix
. This is usually achieved by getting up-to-date sound drivers from your manufacturer's website.
NOTE: Not all sound cards have this capability. Old hardware would likely not have this capability, and also brand new hardware is not likely to have this feature either. The reason the new hardware can't get it is this: people are using it to pirate music. So, the manufacturers have taken the feature away. About Stereo Mix
Record DRM-protected music to standard MP3 files. This is a main reason why “Stereo Mix” disabled in latest audio drivers.