PlayPerfect uses a sound recording device to listen as you play your instrument. It can thus identify the notes that you play, and also provide you with your practice recording afterwards. So it's important to get your recording settings right.
If your instrument has an electronic output, such as an electric guitar, keyboard, or piano, then you may be able to plug it directly (or after amplification) into the 'Line In' or 'Microphone' ports on your sound card. Otherwise you will need to use a microphone to pick up the sound that your instrument makes.
This is the device that PlayPerfect should use to record. If you are getting sound in the sound level meter when you play the instrument then you probably have the right device. A sound recording device usually corresponds to a particular sound card, so if you have more than one sound card then make sure you pick the one that your instrument or microphone is plugged into. If your computer has a built-in microphone then you may be able to choose this as your recording device.
This lets you change which input to use. For example, if your sound card has more than one input port, then you may get the option to choose which of these to use. It can also give you the choice of using the 'Windows Record Mixer' to change the recording volume, in which case an 'Open Windows Record Mixer' button will appear, or choosing 'Master Volume' will allow you to modify the volume directly. 'Master Volume' is a good first choice, whereas the 'Windows Record Mixer' may give more flexibility if you have trouble adjusting the volume.
It is important to get your recording volume right so that PlayPerfect can correctly identify the notes that you play. Start playing some notes on your instrument at the volume you will typically use for practicing with PlayPerfect. The volume meter should start to show the recording level. Adjust the recording volume until the notes you play all fall within the 'Good' zone, between about -6dB and 6dB on the volume meter. Notes lower than this may not be detected, while notes higher than this run the risk of being distorted when they reach the recording volume limit. If you can't get your recording volume high enough, then try checking the volume levels on the instrument or microphone itself.