The Windows update 1803 brought with it what to us in Europe might be known as the GDPR update. Like any other major update, Windows will download, install and reboot. But this time, you will then be presented with some privacy options that Microsoft has forced users to revisit as a result of growing privacy concerns and GDPR in Europe.
Casual users among us (or those who think the government is out to get them and watches everything they do) might hastily click “Do not allow” or similar options when it comes to these privacy options over careful reading.
As a result, many users have caused themselves unintended consequences. One such issue is Microphones no longer working when inside an application or program, but work perfectly well when testing your mic in the Sound Settings found in Settings.

So what is happening?
Allow apps to access your microphone
The clue to this puzzle is in the fact that your microphone works within the Windows Environment, but not inside applications and that includes games.
The reason for this is that during your haste to block access to everything for the sake of “privacy”, you inadvertently blocked your mic from being accessed via applications.
To fix this, press Win + I which should bring up the Windows Settings panel.

Click on Privacy options and select Microphone.

If you see the option Allow apps to access your microphone disabled, then click on it to enable it.
After this, you may need to reboot your system, but your apps will now be able to access your microphone.
Conclusion
When it comes to updates that have behavioral changes to your system, it is always best to carefully read the options available to you.
Microsoft could help mitigate the confusion here by offering a prompt to enable your microphone when launching an app that uses one.