steps to test (I understood that it partly works and the problems are fluctuations, but nevertheless):
- remove for a moment the analogWrite(led, outputValue); and see if it becomes stable
- Connect analog 1 to gnd, does it read 0
- Connect analog 1 to VCC or also to 3.3, does it read 1023 (or for 3.3V around 675 give and take a bit)
- Connected something odd to AREF?
- Tried another pin?
- if you put the sensor and a free wire to analog 1, does it fluctuate when you touch the wire?
- is it analog 1 or the 1st analog in?
- recheck the wiring!