Do I record at a lower volume by manually turning the volume knob down on the microphone
That’s my guess. Try it. Consult your instructions. It’s possible you can’t adjust Audacity because it goes into fixed gain with a USB device. There might be settings in Windows. I’m not a Windows elf.
little soft material to dampen the echo.
In short, the worst recording environment on earth.
I know people who will refuse to try a recording in spaces like that. You have an automatic strike two because your instrument will not fit into a small, made-up studio as you would use for your voice.
Every time you add sound absorbing material to the room, the sound quality will go up. Start with rugs. You can get cast-offs and samples from the dumpster behind carpeting companies.
You can simulate soundproofing on the walls with cardboard (not plastic) egg crates. Nobody wrote you can’t put carpet on the walls. I’ve done that.
And work up. Anything you add to the room will be better than what you had before.
There are some shortcuts. Soundproof opposing walls. Floor or Ceiling, East Wall or West Wall, etc. Then fill in later, the goal is to eventually soundproof everything.
You can make a studio out of hardware store plastic pipes and furniture moving pads. This was a voice shoot. I made those wooden pieces, but you can use Hardware Store plastic pipes.
You should prevent the microphone from picking up vibrations from its base. The book/towel trick works OK.
Good luck.
Koz