You would need to go to Options\Preferences\Audio Device tab\click the Advanced button ..... then select "Enable Input Monitoring". Then the option will appear in the input selection menu.
Unless you have a multi-input soundcard you may not get the "1" button, instead you will get little speakers (one facing left, one facing right or both for stereo). Of course you will have to arm the track for recording before the input selection button will appear.
Also, you may want to have a look at your soundcards settings ... ie if you are recording from the Line In of the soundcard you will need to go to the playback controls and mute the output of the Line In.