You need something of the form:

cuffdiff -o outputname -b genome.fasta -p <cores> -L C1,C2 -u merged.gtf C1R1/accepted_hits.bam,C1R2/accepted_hits.bam C2R1/accepted_hits.bam,C2R2/accepted_hits.bam

Note the lack of spaces following the commas. Group members should be separated by commas with no spaces (with a space between the groups). The label is then applied in the order that the groups are input.