records system input
My personal use for audacity other than randomly playing around with audio stuff was to clean up a CD of a radio recording from a decade ago, that over time had picked up scratches and noise, and managed to do a pretty awesome job overall.
There may be a better way, but that's what I've always done if I needed to record on Skype.
If you (still) use an emu10kn-based card (such as the SB Live), the kX project drivers allow custom routing, mixing, and alteration of inputs and outputs via the card's built-in DSP chip.