The only real way I would consider FFVII innovative is the manner in which it used FMVs. I can't think of a game before VII that managed to connect gameplay with FMVs any where near as successfully. The actual quality of the FMVs is a little dubious but it would be hard to debate that the game utilized them very well.

Everything else was just an extention of concepts that had already been established in previous FF games, other JRPGs and a few early playstation games. FFVII's direction owes a lot to Resident Evil, for example.