In a car, which has a multi(4/6/8) cylinder engine, the above nomenclature 1.2L, 1.4L, 2.0L, 3.0L etc. refers to the combined volume capacity of all the cylinders ( expressed in cubic centimeters, 1L=1000 cm3). Here volume capacity refers to the swept volume or displacement volume or breathing capacity of the cylinder. It is basically the volume of air that can be sucked insde the cylinder as the stroke moves from TDC to BDC.
Swept Volume, V= pi/4*d^2*L*K , where
d- Bore, L-Stroke, K-no. of cylinders.
Usually, higher swept volume means higher power and subsequently higher fuel consumption. This is because:
Power, P= Mean Cyl.Pressure*Stroke*Pisto
So, Power generated is a directly proportional to the cylinder capacity.
However, now with different fuel efficiency techniques it needn’t be that the higher capacity engine consumes more fuel than the lower capacity one.