Microphone is picking up headphone sound and not my voice!?

your recording devices should have both listed. It is quite likely that for whatever reason, the headphones mic is currently selected as default.
Also if you use front panel jack for headphone it is quite likely that plugging headphone mic in there is set to disable the microphone slot in the back, you could of course plug the mic into line-in instead and select that as default device.

or alternately, select recording device to use in the recording sofware. (could be also set as "what you hear" aka.. without microphone)

If that doesn't help, more information would be needed.
like if headset also has a mic (I assume it has)
if you have plugged both headset and external mic in at same time
the ports said mics are plugged to?
mainboard/soundcard type?
recording software being used?
OS being used (assuming windows but which one? 7/8/8.1/10?)

Sadly I don't have access to win10 at the moment, my win10 test laptop is.. under reinstall (windows10 broke, I tried to break it)
First, you cannot have TWO default recording devices.

Some ports can have feedback, For me (and my realtek soundcard) it tells if the port has that problem. (I've not seen it in my own use but they don't guarantee it)

the listen to this device tick allows you to hear what microphone hears.
Useful at times as far as testing goes and if your headphones nullify external voices (you don't hear yourself normally) or.. something. matter of taste really.
If said tick is in there, it is decent idea to test without.
most of the ports are auto configured (as speaker/mic/whatever else) based on what you plug in.

the ports mics are plugged into are color coded.
mainboard/sound card are unknown? well.. how about computer type then? since from that, it's insides can be found out too.
This part is mainly in case someone needs to know something more specific to help.

Recording software being used question was more like... Yes, you hear the sounds but not what you say from the mic. (might be a case of that listen to this device tick being missing)

Recording software being used question was more aiming at what you were doing when you were using said mic to.. I guess speak to someone or comment or.. something?
skype? playing a game? streaming it? recording gameplay with something?

and if it is any of those, were only you affected or was the final product also missing the sounds?

I sometimes have hard time being understood.

You have headphones with a microphone
You have separate microphone on desk

Your problem was:
your microphone "hears" only the headphone speaker sounds and not your speech.

So.. when you are listening to music or anything else, the voice bar on the microphone recoding device keeps jumping up/down? (the mic hears something)
To possibly fix that, check the levels tab where you can assign recording volume slider (on top) or mute it
and extra gain boost of 0 to 30db (default 0, only to be used if nothing is heard otherwise, most often causes problems with background noise)

alternately that or... you have plugged mic/headphones/another mic in wrong 3.5mm plugs on the computer.