This message is shown when PlayIt Recorder is unable to listen to the audio device. This is usually because there is already other software listening to the device. You could try turning off Exclusive Mode on the microphone device. You can do this by going to Sound Settings (the Window you have open in your screenshot) and scrolling down to Sound Control Panel. Then under the Recording tab, find your Microphone device, double-click it, and select the Advanced tab. Untick "Allow applications to take exclusive control of this device". Click OK. You may need to restart your computer afterwards.
Sarahb16