This is where you will select the devices you want to encode from.
If you want Audio only, simply leave the 'video' box unchecked, otherwise check both boxes and select a device for each.
If you are not sure which device is the correct one, start with the "default audio device" (if it doesn't work you can try one of the others in your next session).
Select your Audio and Video devices (if applicable), click "Next", and proceed to Step 3.