You mean the embedded Voice Recorder app in the phone? It does not record "cell phone" conversations, it is more like a digital memo recorder and I would imagine it functions like other media apps in the phone, when a call is occurring all other media is stopped.
There are call recording apps in the Play Store, they having varying results with varying devices so you might have to try a few different ones.
As far as I know all audio in/out is stopped when a call comes in. Basically a voice call trumps all. I know if I silence a call my media playback will continue but I'd imagine with a voice recorder it would stop and not start automatically. It just makes sense, this is a phone after all.
The one on my previous droid incredible did not stop when a call came in unless I answered the call. And, I was able to record phone calls -- I think I can still on the rezound, after the call is established I can put it on speaker and then start voice recorder.
The use is, I'm sitting in a meeting and recording it, and the phone rings (it is on silent) and I do not get the call, but the recorder stops, this is what I want to avoid; is there a privacy mode to turn off the phone app so calls don't interrupt other stuff?