This isn't what he's doing, but if you use an audio routing system like jackd on Linux or Soundflower on Mac OS X, you can capture audio output from one application (flash youtube videos, Skype, iTunes, etc.), mix it with your system input, route the superposition of both signals to Audacity, and record everything into the same stream. You can also use audio routing to mix a conversation into the input of an icecast server. That way you can stream a live Skype conversation mixed with music and sound effects into an Internet radio show while also recording and monitoring it.