“Stereo Mix” is a function of the sound card and its drivers. The recording software is completely dependent on the presence of this feature. For example, sound cards from Creative Labs use the “What U Hear” name for this feature.
Combine this with sound recording software and you can record anything you’re able to hear on your PC. Great for recording game soundtracks. And it’s a simple solution for bypassing whatever consumer-hostile DRM crap the rest of your computer tries to foist on you.
Some recording software adds this feature by wedging an intermediate sound-card driver between the computer and the sound card, but you will have compatibility issues with many audio-related software, especially with Windows Vista.