Step 1: Recall the structure of cellobiose.
Cellobiose is a disaccharide composed of two $\beta$-D-glucopyranose units. These units are linked through a $\beta(1 \rightarrow 4)$ glycosidic bond.
Step 2: Analyze each statement.
(A) Cellobiose has one free anomeric carbon, hence it is a reducing sugar. This statement is true.
(B) Cellobiose is obtained by partial hydrolysis of cellulose. This statement is true.
(C) This statement is incorrect because in cellobiose, C-1 of one glucose unit is linked to C-4 of the other glucose unit, not to C-2.
(D) Cellobiose consists of two monosaccharide units, so it is a disaccharide. This statement is true.
Step 3: Conclusion.
The incorrect statement about cellobiose is option (C).