The point of his "death" and immediate return was to desensitize the player to realistic death and prevent them from expecting anything to actually happen to [spoiler]Aerith later. This was further capitalized upon by making it appear that
(SPOILER)Aerith would be alright when the other party members stopped Cloud from crushing her beneath the Buster Sword. Thus, it was totally unexpected and truly brought home how unexpected and undramatic a thing death is. The dramatic build up had already come and gone when the form of Sephiroth dropped in and slid a long cold blade through Aerith's spine.