Open the "video capture device" Source, properties.
1. Change [Audio Output Mode] from these:
Output desktop audio (DirectSound)
Output desktop audio(WaveOut)
2. Change [Audio Output Mode] to this:
Capture audio only
This is not what it seems, selecting one of the others pipes the output of the device through a mix with the other source; either "Desktop audio" DirectSound or WaveOut .. which I suspect are Desktop1 Desktop2
If you select one of those then you disable the ability to enumerate and use the "Video Capture Device" as an audio source in the "mixer" panel of OBS.
Instead "Capture audio only" means, do not pre-process it and mix with anything else, pipe it straight into OBS as an independent source. It literally means "leave it alone" do not "do anything to it" simply "present it".
You CAN still check the box [x] User custom audio device, and "must" use CY3014USB, Analog 01 WaveIn to connect the video capture device to the OBS mixer.
This "might" seem like it would disable the ability to capture [both] video and audio to a [Start Recording] session. It DOES NOT !
Any Streaming or Recording includes [both] video and audio.
This is a very BIG deal.. it explains the original interpretive conceit with OBS and why its so hard to use for most people.