If we use SoundFlower to record the system's audio output, then we can't hear it at the same time?

No. You can still hear the sound by creating a new audio device in Audio MIDI Setup. Go to the SoundFlower menu and click "Audio Setup". Audio MIDI Setup should popup up. Create a new multi-output device (click the + in the bottom left hand corner). Then set the settings as pictured below:

This will allow you to capture the system sound and still hear it through your speakers/headphones.

When you install Soundflower, you should also have an application named "Soundflowerbed" located in Applications > Soundflower.

When you launch it it opens only into your menu bar.

Clicking it reveals a menu that is used to route the output to another device of your choosing.

Selecting Built-In Output, or the output device of your choosing, will allow you to monitor the audio Soundflower is capturing.

I own a MacBook with Retina Display. The process is a little difficult, but you do need to follow the 2 other instructions listed here, about Soundflowerbed & Audio MIDI Setup.

The 3rd & Final Step for me was to go to SYSTEM PREFERENCES > SOUND ...

1) Under the OUTPUT tab, select "Multi-Output Device"

2) Under the INPUT tab, select "Soundflower 2ch"

Now I can record audio/video while using my headphones; although the volume cannot be controlled via the computer & when recording sound the volume is a bit low. But once I revert back the Input/Output options under SYSTEM PREFERENCES > SOUND, the audio is back to its proper volume.