Stereo Mixing is a simultaneous processing of both left and right audio channels and in the case on computers looping the sound back into your computer. Basically, this allows you to allow your viewers to hear what you hear.
Stereo Mixing Setup
- Find the Speaker in your System Tray, and Double Click on it.
- Now go to Options and then Properties.
- Under "Mixer Device" choose your input device if available. If it is not available click on the Radio button that says "Recording".
- Under "Show the following volume controls:" check "Stereo Mix" then Click OK.
- Now Unmute Stereo Mix and you are ready to go
For a video tutorial of this, please see: 
Windows Vista / Windows 7
- First, locate the “sound” icon on the right edge of your task bar (beside the time display). Right click it and select “recording devices”.
- Now, right click on anywhere on the menu. Look for an option that goes by the name “Show Disabled Devices”. Click on it to enable it.
- Observe the items in the list grow. Scroll down till you find the “Stereo Mix” option. Right click it and enable it!
If you do not see "Stereo-Mix" when doing the above then you need to install your Drivers from the sound card manufacture website.
Microsoft made it so "Stereo-Mix" will not work so to get this install the drivers from your sound card manufacture website.
Creative Lab Sound Blaster users may see "What U Hear" instead of "Stereo-Mix"
Windows: Alternate Method
On some systems, stereo mix or "What U Hear" will not appear as an option. If this is the case on your system, you may try connecting a small cable between the line out and line in on your sound card. This effectively sends the audio that you "would" be hearing, and sends it back in to be broadcast.
- This can lead to over driving the sound card and no one will understand what is being played.
There are also some software solutions. Some software like VAC(http://software.muzychenko.net/eng/vac.html) or Virtual Audio Streaming(http://www.shiningmorning.com/VirtualAudioStreaming/index.html) can simulate a virtual sound card to fix the stereo mix issue.
MAC OS X
You can use: