Media >> Open capture device.
Select video & audio device name.
Select a format in the video size, like 1920×1080.
Click on the arrow of the Play button.
Select Convert.
There, by default, you can select encoding scheme and audio data rate. By default, it will encode using H.264 & MP3. You can verify if it is working by choosing a destination file and by hitting Start.

Tried it. No go. Clicked on the Edit selected profile of Convert. Shows “This muxer is missing. Using the selected profile will fail.” Web search seems to indicate bug of the VLC Windows build. No newer version currently available. You could also use ffmpeg, which is the best recording framework.