When you write a polished story (or a polished turd, really) you create a world bigger than what you show. It's kinda like you're looking through a window, there's more to outside than just what you see, and a good author knows that.
It is in no way amazing, because if they hadn't created that backstory, they would have used another element. They could make an amazing dating sim right now and make it fit with the game's bordello and tropical resort.
And you know what, it still doesn't make FF7 great writing, it's above average but not by much. So many plot elements in there were tired when they were used, it's not funny. Amnesia guy, traitor but actually an ally, tragic hero, lost his wife, tragic hero, lost his parents, tragic heroine, loves main character, tragic hero, lost everything. They reused similar stereotypes in the same game for Christ sake. And the whole "we know you're lying but hey, you might have amnesia so lets accept your lies" that was BS. The whole Cloud / Zack storyline was botched just to keep a semblance of surprise for the player, but that's piss poor writing since it forces characters outside of who they were. Tifa knew the truth and she said nothing until Cloud remembered? She's portrayed as brutal and impulsive. If you were to look at this with a critical eye, you would see that the game is pretty much swiss cheese.