From: http://audacityteam.org

(From http://audacityteam.org/wiki/index.php?title=Transferring_tapes_and_records_to_computer_or_CD)

1. Go to the Audio I/O tab of Preferences and set both the playback and recording devices explicitly to your inbuilt sound or to the computer sound device your cable is plugged into. Do NOT select “Microsoft SoundMapper” on Windows machines.
2. If you want to record in stereo, change the recording channels on the same Audio I/O tab to “2 (stereo)”.
3. On Windows XP or earlier or Linux systems, select line-in as the recording source on Audacity’s Mixer Toolbar dropdown input selector:
   http://audacity.sourceforge.net/onlinehelp-1.2/toolbar_mixer.htm.
   On Windows Vista choose the line-in option for the recording device you want to use (e.g. “Line-In:Realtek HD Device”) in the “Recording Device” dropdown in the Audio I/O tab of Audacity Preferences.If you cannot choose your input source on the Mixer Toolbar as above as you should be able to, or if the line-in input won’t record, see our further help for your particular operating system at Mixer Toolbar Issues.HELP IF YOU DON’T HAVE A LINE-IN PORT
   Some MACs and notebook/laptop computers do not have a line-in port. In that case check if your microphone port can be toggled to line-in with a switch, or by changing the recording source in the software. On some laptops this line-level source is called “mix” or “stereo mix”, in which case you could select this source in the system sound preferences (or on Windows and Linux, in Audacity as described above). If you see a line-in option available, always choose that as your recording source. If you have neither a line-in port nor any way to switch the microphone port to line-in, you need to add a line-in by adding a USB soundcard, or other suitable audio input/output device that connects to the computer via USB. Examples of recommendable input/output devices are the Griffin iMic which has a standard 1/8 inch input, and the Behringer UCA202 which has left and right RCA inputs.If recording into a USB device, set this as the “Recording Device” in the Audio I/O tab of Audacity Preferences (and also do so in the Apple Audio-MIDI Setup or Sound Preferences if you’re on OS X). Where you use a simple I/O device like iMic or Behringer, the Audacity Mixer Toolbar input selector will not be in use, although you’ll need to set the line/mic toggle switch on iMic to “line”. In the case of a full USB soundcard you will need to select line-in as the input source in the same way as you choose input sources for your inbuilt audio device.
4. Decide if you want to “monitor” your recording, that is, hear it played back as you make it. If you do, and you are on Windows or Linux, you can use what’s known as “hardware playthrough”. To do this, open the system sound mixer e.g.Sounds and Audio Devices in the Control Panel of Windows XP or earlier, unmute line-in as a playback device, and turn the volume up. If you are on OS X, simply go back to Audacity’s Audio I/O tab and enable “hardware playthrough”. If this does not work, or if the playback and recording devices on the Audio I/O tab are different, choose “software playthrough” on the same tab, which works on all operating systems.Note the sound with software playthrough will be heard after a slight delay, and causes some extra load on the computer.
5. Next, set the volume level of your recording input. Click on the downward pointing arrow in the right hand (red) VU recording level meters and click “Monitor Input” (or “Start Monitoring” in Audacity 1.3.3). While playing a loud part of your tape or record, adjust the input level slider on the Mixer Toolbar so the recording meters are almost reaching the right-hand end of the scale. Don’t let the meter bars actually reach the right edge, or the red hold lights to right of the meter will come on, indicating you’ll have distortion in the recording. If the recording level meters are not visible, go to the Interface tab of Preferences and check Enable Meter Toolbar, or in Audacity 1.3.3, go to View > Toolbars > Show Meter Toolbar.Recording, editing and exporting
6. Create a new Project by clicking File > Save Project As. Start your recording by pressing the red Record button, then starting the player. You can pause and restart the recording between tracks or sides with the blue Pause button, which keeps your recording on one track within Audacity. This is the easiest way to record into Audacity, because having just one track on screen allows you to split the recording up into the different songs or sections using “labels”. See Step 10) below for more on this.If you do want to start new tracks or sides of the tape or LP on a new track in Audacity, then press the yellow Stop button to stop recording, get the LP or tape to where you want to go to, then press the red Record button in Audacity and start the player. The recording will now restart on a new track.For general purposes, use Audacity’s default Project Rate of 44100 Hz (set bottom left of the Audacity window) for both recording and exporting. Optionally, recording from analogue sources like LP or tape at 48000 or 96000 Hz Project Rate may capture somewhat higher quality. However, burning audio CDs requires a 44100 Hz WAV/AIFF file, and 48000 Hz is the highest sample rate most media players on computers can cope with, so downsampling when you come to export from Audacity may still be necessary.
7. When you have finished recording, press the yellow Stop button and save your recording into the Project you started (File > Save Project). Now the data is safe, you can edit it in Audacity if you want to (e.g. cut redundant pieces out), or come back to it later by re-opening the saved Project file (File > Open). See here for explanations of basic editing processes:http://audacity.sourceforge.net/manual-1.2/tutorial_ed_beginner2.html
   http://audacity.sourceforge.net/manual-1.2/tutorial_ed_beginner3.html
   http://audacity.sourceforge.net/manual-1.2/tutorial_ed_beginner4.htmlYou may also want to remove steady noise such as tape hiss or vinyl roar using Audacity’s Noise Removal, and clicks from records using its Click Removal
8. When you are happy with your editing, you need to export the recording as an audio file such as .WAV or .MP3 that you can either play on your computer media player (e.g. on iTunes or Windows Media Player), or which you can burn to an audio or MP3 CD. See sections 9) and 10) below about the difference between audio and MP3 CDs. To export a single audio file you use the File > Export As.. command. If your recording contains multiple tracks or songs, you may want to export these from your Project as separate audio files. This would be necessary if you wanted to burn a CD with separate CD tracks corresponding to each track in your recording. To prepare your recording for export as separate audio files, you mark the split points between the sections with the Project > “Add Label at Selection” command. This places labels (in a new Label Track underneath the audio track) which both act as split points to divide your recording and can carry the name you want for the track. Then you use the File > Export Multiple command to export your multiple audio files at one go, based on your chosen split points. See Splitting recordings into separate tracks.
9. The most common formats for exporting are WAV, AIFF and MP3. WAV and AIFF files are of identical “lossless” quality to the original recording, but take up 10 MB or more of disc space per minute. To burn an audio CD that will play on any standalone CD player (note these only give 74 – 80 minutes’ playing time), export your recording as a 44100 Hz, 16 bit stereo WAV or AIFF file. For lossless archiving on hard disc, consider FLAC, which offers file sizes about half as great as WAV/AIFF.
10. If you want your exported audio file to be smaller still (at the expense of some loss of quality), you can export as OGG or MP3. Choose MP3 if you want to distribute the file over the internet, as all users will be able to play this format. You can also burn the MP3s to a “data CD” or “MP3 CD” which will give you (at Audacity’s default MP3 export settings) over 11 hours’ playing time on the CD. Note you can only play these kind of CDs in computers, MP3 CD players (including some newer automotive players), or some DVD players. Generally, you will see an MP3 logo printed somewhere on the device if it is MP3-capable. Note that most players manufactured prior to 2005 will not be able to play MP3 CDs. To export as an .MP3, you first need to add the LAME encoder to your system and show Audacity where it is – see Lame Installation.
11. If you are exporting your file to a media program which has its own “Library” such as Windows Media Player, iTunes or Real Player, you would generally drag your exported file into the program’s Library, or use the media program’s built-in commands to add the exported file to its Library. For more help on importing your audio file into iTunes (e.g. for burning to CD or for putting on an iPod), see Exporting your Audacity Project into iTunes and iPod .