The Audio Source is the device that is capturing speech audio.

For Dictation, you will choose a microphone as the Audio Source. Choose your microphone from the list. Optional: Provide a custom name for the microphone. You can see what microphones are connected to your Mac by clicking on Sound Input Preferences.

For Transcription of recorded speech audio, enter the name of the device that has recorded the speech audio, such as a digital voice recorder or a smartphone.