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Confused by new preferences

I downloaded TD 1.2 today, and I've been playing with the preferences. To record an internet stream I set the TD Record Using pref to Soundflower (2ch). I've tried setting the Play Using on both Built-in Output and Soundflower (2ch), but nothing seems to get recorded. I can get it to work by going into the System Settings. I'll assume I'm doing something wrong. Give me a sense of how the System Settings and the TD Preferences should be set -- for both recording and playing back an internet stream, and please explain how the TD Prefs affect what the System Settings are doing. Thanks in advance for your help.
 
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