First, download and install Audacity.

Then, to be able to record both the microphone input and the sound card output at the same time using Audacity, you have to un-mute the microphone playback in the Volume control.

1. Double click the speaker in the System Tray
2. Click Options – Properties – Playback – Check Microphone – Click OK
3. Un-check the microphones mute and raise the volume

You should now be able to hear yourself in the speakers or earphone when you talk in the microphone and also be able to record the output (person you called) and the input (you) in Audacity. Select Stereo Mix on Audacity’s Mixer Toolbar and hit Record.