There is a MOD for the PC version of FF7 I have found online. It gives all of the main characters and about 60% of the NPCs a higher amount of polygons making the game look a lot better while walking in towns and in cutscenes. Here is a list of all the files you will need and README files are included. I swear they are not viruses.
Here are a few screenshots that look similar to what it will look like. The only differences that stand out to me are that Cloud's sword is shown on his back and the models are scaled down which makes it work a lot better.
Here is a video using FRAPS suggested by MoonlightDarkness. I am very sorry for the low FPS. I am still experimenting with FRAPS. The video contains the part where Cloud jumps out of the train and a little more after. Also, YouTube meesed up the quality a little. Hope you enjoy!