First, get a simple stereo audio patch cable (stereo headphone jack at both ends). Plug one end into your computer's audio out jack (usually colored green) and the other end into the mic input jack (usually pink).
Then download Audacity (and the Lame MP3 plugin to export your recordings to mp3 format). Install both and launch Audacity to begin.
The video below will illustrate the rest but I've typed up a quick explanation so you know what's going on.
As an example, I fired up Winamp to have some music playing. First, I click the microphone meter region to "Start Metering" so that when audio is playing, you can see the signal bars jump. Click the red record button and then start playing the audio you want to record. The mic signal bars should start dancing.
After you are done recording, click the stop button in Audacity. Use the mouse to highlight the captured audio you want to keep. From the File menu at the top, select Export Selected Audio. Save the file, type in your tags in the Metadata dialog box that appears next and then you're good to go!
Go full screen and change to 720p resolution to see details!
