You can get symptoms like this if you have the wrong devices selected. If you like to record YouTube or other on-line content, there are system and Audacity settings that allow you to do that, but those settings do not work in Overdubbing.
It’s something of a time bomb. Recording “All the Stations” theme song from YouTube on Monday will cause Overdubbing to fail on Thursday.
The two windows for recording and playback in the menu bar have to be real things, and it’s unfortunately complicated by the data name for a device which can be different from the real life name. For example, my Behringer UCA-202 stereo interface arrives as “USB Audio CODEC.”
And that’s not nearly complicated enough, so whatever you do has to appear in Windows Control Panels, too. Audacity gets its sound from Windows, not the device itself.
So right-click the little Windows speaker lower right > and drill down to recording devices and playback devices and make sure the right things are selected. In the case of recording, the Windows sound meter should jump when you make a sound.
If you can’t figure out which device is which, note the devices appearing there and then disconnect the microphone. See which one vanishes.
After all that, open (or re-open) Audacity and make sure the same things are selected in the tiny microphone and speaker boxes.
Now go into recording preferences and select Overdubbing and not playthrough.
See if everything works.
That’s simple overdubbing where you hear everything but yourself. No mix.
For perfect overdubbing where you hear your own voice in theatrical mix, that needs your headphones plugged into your microphone (if it will do that) or preamp/interface. Generally, you can’t listen to the computer because of echo and delay problems.
And since you’re in Windows, this can get more complicated yet. Turn off Windows voice processing if you haven’t already. Windows likes to process your voice for Conferences, Chat and Communications. The processing hates music.