On the SP changelog on Github, the description of the record FX reads:
enables you to internally record any audio into named buffers. Perfect for building looper systems.
When it says “internally record,” is it able to only record audio from Sonic Pi, or can it record any internal audio from the computer?
I would assume that it would just be Sonic Pi’s audio, but I figured I would ask, just to be sure.
Excellent question!
As with all FX it only operates on the audio generated within the do/end block.
However, you can call live_audio in that block to record audio fed into your sound card.
Does this help? 
help it does. Thanks!
EDIT: One other question – How would I use INTERNAL audio with live_audio? Or would I just use with_fx :record?
Could you explain what you mean by internal audio? Do you just mean any arbitrary audio generated by calls to sample, synth and play?