"Let me 'splain..." Inigo Montoya
Audio from Skype has to be channelled to Audacity in order to be recorded. Soundflower acts as the conduit.
On my Mac, the settings that work for me can be enlarged by clicking the images below:
1] Audacity: The settings for Audio I/O need to channel sound from the Skype call, through Soundflower. Though I'm not sure that I need to, I set the computer to 'playthrough' the audio to my speakers so that I can hear the caller.

2] Skype: I send the audio out of Skype to Soundflower. The Snowball is my microphone (input); and I like to hear my speakers ring if a call is coming through.

3] Soundflower: Setting Soundflower to listen to the Built-in Output, ensures my Microphone and the incoming audio from the Skype call are both received.

If there is an easier way to record Skype calls (with free software), feel free to add directions to the comments below.
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