(Turn on annotations for corrections!) Voicemeeter is a versatile "virtual audio mixer" software for Windows XP, Vista, 7 and 8, 32 and 64 bit. This is a one-hour webinar covering everything in the Voicemeeter software's manual, for those who would rather watch a video! (Click "Show More" for links and more info!)
Voicemeeter allows two hardware inputs (or more in some cases) to be mixed with system sounds with slider control over each level, and some strip-based processing as well. Output to monitoring devices AND broadcast or recording software can be controlled for each input. I know of no other software offering this much flexibility, and it is free to use, being monetized as donationware - pay what you can according to your means.