System audio and your microphone are two independent toggles in HappyRec, captured on two independent tracks — here's how to get both dialed in before you hit record.
Turn on "System audio" to capture whatever your Mac is playing — an app, a browser tab, a call — alongside your narration. They're written as two separate audio tracks in the same file rather than mixed down into one, so an editor can adjust or mute either one independently after the fact. The mic track is always first, so any player that only reads one audio track defaults to your voice, not the background sound.
The main window shows a live 7-bar microphone level meter while you're recording (or just monitoring), so you can catch a mic that's too quiet or clipping before you've recorded ten minutes of it.
Preferences → Camera & Mic has a "Noise reduction (voice processing)" toggle. It takes effect the next time the mic starts — flip it before you begin, since toggling it mid-recording won't retroactively clean up audio already captured.
If you need lossless audio for further editing — a voiceover you'll process later, for example — switch Voice Record mode's output format to WAV before recording.