To record audio from other apps, such as iTunes or Skype, install Soundflower or LineIn to re-route the audio output from iTunes or Skype into something that Sound Studio can see in its Preferences.
Instead of installing Soundflower or LineIn (on the left), you could also install Rogue Amoeba's Audio Hijack Pro or Nicecast so that you can record directly from other apps into a file that you can later edit in Sound Studio.
The version of Sound Studio above will allow you to save as MP3 if you install the LAME MP3 Encoder. Unless you have a 64-bit version of LAME.framework, you'll need to run Sound Studio in 32-bit mode. Use the Finder's Get Info on the app icon on the disk, select "Open in 32-bit mode", and relaunch the app.