With the launch of Microsoft Vista Microsoft changed the audio system. Before you had devices and each device had its audio lines. Microsoft decided to eliminate the audio lines and treat all forms of audio into a device.
The new system caused confusion initially and to this day because the audio device you want to record from must be enabled and you have to set it up as the default device if you want to record it otherwise it will not work.
Bellow is a video that helps you to understand a bit more Windows Audio and how it works.