As part of a Final Fantasy VII 15th anniversary feature, Weekly Famitsu posted interviews with Tetsuya Nomura, Yoshinori Kitase and Kazushige Nojima. Here's a sampling of what the three FFVII VIPs had to say, via Sokuho's summary.
When it was decided that the game would be 3D, they looked at either having sprite-based characters or polygon-based characters. The sprite-based character idea was originally the more popular of the two, but they ended up going with the polygons because it would allow them to better express character movement.
Alone in the Dark caused great stimulus.
FFVII's battle character models are normal proportioned while its field character models are SD-style. Hironobu Sakaguchi had wanted the SD characters for the fields in order to show character expression.
Sakaguchi placed his effort on the game's battle system, and also came up with the idea for the Materia system.
While Tetsuya Nomura is known for his work on the game's character designs, he also contributed to the gameplay systems, including coming up with the idea for limit skills.
Nojima took joined the FFVII team after the main character settings were complete. He feels this is quite early in the process.
Kitase wanted a mysterious scenario.
Zack was added towards the end of development. They needed to show Aerith's first love and a true soldier, resulting in the need for the character.
Once FFVII's production was given to Kitase, he and Nomura rethought the plot from scratch. Nojima was still working on Bahamut Lagoon at the time.
Nomura wanted to have one of either Tifa or Aerith die.
Tifa actually wasn't in the game initially. Aerith was the sole heroine, but Tifa was added later.
Instead of his final spiky hair, Cloud was originally designed so that his hair was slicked back. This was to reduce polygon use. Aerith's one piece was also the result of polygon considerations.
The original character setting had Aerith and Sephiroth as brother and sister. The effect of this setting can still be seen in the designs of their front hair. Later, they changed the setting so that Sephiroth was Aerith's first love. That eventually resulted in Zack.