sigmab,
If you are just trying to compare the contents of 2 directories (and subdirectories) then I suggest using Windiff instead. This utility found in the resource kit allows you to compare directories and files.
If you compare directories it compares the files within the directories and reports whether the files are identical, different or whether they do not exist in one or other of the directories.
Really depends on what you want to compare. Sysdiff is usually used to capture differences to a workstation during a software/application install of some sort. I.e. you would take a snap shot of the system before installation.
sysdiff /snap SnapFile
Install your application and configure to your specs,
sysdiff /diff DiffFile SnapFile
then generate the output by
sysdiff /inf DiffFile C:\Temp
Run sysdiff from a command prompt and run it from the C:\Temp directory as this directory is an excluded directory for sysdiff as obviously you don't want to pick up any temp files that are created by the installatioin of the software to be captured. To change/add/delete what directories/file/registry key are in are in the sysdiff edit the sysdiff.inf in notepad. There are instructions within this file on how to use each section.
To get instructions on sysdiff just run sysdiff.hlp this is a standard windows help file with the commands and uses.
HTH
AussieClint