I like to use iShowU to record my screen – sometimes I do record system audio. iShowU uses Sound Flower to do this. Most of the time – iShowU properly disables SoundFlower when it is done – but sometimes it does not. This is what you do when SoundFlower is stuck on (this is Mac OS/X 10.5)
Preferences -> Sound -> Output
Switch the output back to your built in speakers.
You know this has happened when you try to change the volume on your mac and the mac refuses to change the volume and you see the little “international not” symbol in the little volume display that pops up.
This fix is also described at the Soundflower page:
http://www.cycling74.com/products/soundflower