How to capture screen video (with audio) using VLC media player?

Ok, this isn't about VLC but I'm guessing the real question is "How do I easily record my desktop, with audio, preferably with a free open source app?"

I gave up on obscure VLC command lines and found another piece of software called ShareX, which is free and open source.

It's pretty easy:

1. Download and install ShareX.
2. Run it and click Capture->Screen Recording...
3. It asks you if you want to automatically download ffmpeg.exe, say yes.
4. Next go to Task Settings->Capture->Screen recorder->Options
5. Change the video source to screen-capture-recorder (it's a bit fast in my experience), and the audio source to your microphone (or whatever).
6. Use Capture->Screen Recording again.
7. It will now even let you select the area of the screen to record!

This is much nicer than VLC. The only downside is that the colours seem a bit off for me - less bright than they actually were. I'm not overly bothered though.

Edit

In recent versions you can hold Shift to do square recordings and Alt to snap to common resolutions.

(Note: Answer dates from 2014, so better methods may exist today.)

From how to use VLC to stream your desktop live (windows) with audio (or stream a DVD) :

VLC by default comes with a "screen input" option, to capture the desktop. Unfortunately it appears there’s a bug (status: closed wontfix), so currently it can only capture video.

The solution is to use DirectShow as an alternative input. With Directshow, you can choose your video and your audio input device separately, and they do work together out of the box.

So first go and download the direct show screen capture input filter from here.

Next setup your sound card to be able to capture wave out. If it is not there as an option then you may find some helpful notes here.

Now open VLC, choose Media menu -> Stream -> Capture Device tab. Set Capture mode to "Directshow", set Video device name to "screen-capture-recorder", and set Audio device name to "virtual-audio-capturer".

Now click on "stream" and follow instructions.