Capturing the output of your soundcard used to be a hit and miss affair, but I think I've got it down...
First item is to install the PulseAudio Volume Control (PAVU) from Ubuntu Software center. This is a much more comprhensive control centre for sound than anything that ships natively.
- Open PulseAudio Volume Control from the Unity Dash or your favourite desktop environment, dock, launcher or menus.
- Go to the Input Devices Tab.
- From the dropdown Show (towards bottom of the pane), select All Input Devices.
- Select Monitor of Built-in Audio Analog Stereo as Default fall back option - clicking the check box top right.
- You can close the PAVU.
- I swear by Audacity which is the Swiss Army Knife of audio. If you select Pulse as your recording source (beside the microphone icon), Audacity will record all output from the sound card and you can edit the results to your heart's content.