Audacity and live mic interference

I've googled and searched and found nothing on this topic, which leads me to believe that I am missing something very elementary and simple. If it were a problem, it would appear more readily!

When I'm recording on my Macbook Pro intel the only feed audacity recognizes is the build-in mic option. Others are line and two others that do not work for 2 channel and 16 channel.

Therefore, when I am recording a tune to edit, the mic remains live on my machine, which basically makes the recording worthless. Audacity reads the song (VU meters) and records it, but it also records any sounds in the room, plus the quality of the song is worse than holding a microcassette up to the speakers.

How can I turn of my live mic in my laptop and still record the songs that are playing?

I tried every configuration in preferences, etc., and I am by no means a mac newbie...my first mac was an se with a 20mg hard drive back in the last century.

Any ideas from those who are users of audacity? I can't believe that this is not a common issue?

Thanks.

Stevie