You did press play on the minidisc - right! :-)
I run Ubuntu Linux, so not up on the Mac side of things, but in Audacity you can change the source for recording. Just under the transport bar there is a wee picture of a microphone: my screenshot shows it at 'default', but the drop-down might give you the input options you mentioned above.
You can adjust input levels using the slider below the play button.
Glad you found the recordings of your Gran - that's one of the great things about minidiscs - longevity which surpasses system upgrades!