I am guessing this is PC based ...
my iPhone 4s will 'take' dictation ..
... although I speak like I have a mouth full of marbles
and I have so speak v e r y s l o w l y .....
otherwise it is fine ....
my windows 7 has some feature for setting up a microphone in the 'sound' settings
otherwise:
Control Panel\Ease of Access\Speech Recognition
I am not sure you can dictate directly into notepad .... my iMac you can