iShowU HD (v1 also) use a third party driver called Soundflower to hook into the Audio.
We'd love it if Apple had made it so that we (as developers) can record audio from an application, or from the computer itself but unfortunately and for whatever reason there is no API to do this.
You can think of Soundflower as a pipe. Whatever goes in one end comes out the other. In this case we're talking about audio. Whatever audio is played to the Soundflower 2ch output appears on the Soundflower 2ch input.
So to record audio, iShowU does the following:
If you go into your System Preferences under Sound, it should be present in your Input as well as your Output tabs.

You can go to this site for an overview of Soundflower or directly download the driver here.