I admit to being stumped on that one. I've never found any controls for the microphone. It works, or it doesn't.
You have three types of microphone input. The external one is at the top edge of the iPad, centered between the power button and earphone jack. The earphone jack can support an external microphone with a standard four conductor jack. If you have a set of Apple headphones with the mic built in, or another compatible set give them a try and see if they work when the external mic does not. It is also possible to connect a microphone through the dock port, and a few manufactures do make compatible mics.
Other than that all I can recommend is a restart and or reset, if you haven't already tried them. And if that does not work contact Apple. If you have an iPad 2 it pretty much still has to be under hardware warrantee, and if the microphone does not work (and there is no sign of accidental damage), they should replace it for free.
Restart: Hold down the power button until the power off slider appears. Slide it off. When the iPad finishes shutting down, hold down the power button again until the Apple logo appears.
and then a reset if that does not work.
Reset: Hold down the power and home buttons until the Apple logo appears. The iPad will reboot. This usually takes a bit longer than a restart.