FFVII - Story FAQ
Is Cloud a Clone?No, Cloud was attempting to join SOLDIER after leaving Nibelheim, didn't make it and became an MP, which is lower than even the worst SOLDIER. Cloud was friends with Zack. One day he, Sephiroth and Zack were sent to Nibelheim to investigate a malfunctioning reactor. Cloud threw Sephiroth into a large pool of lifestream and he was captured along with Zack. This is where the clone thing really started; Zack and Cloud were injected with Jenova cells and subjected to Mako to try to make them as strong as Sephioth, who was presumed dead. Zack didn't react to the treatment but Cloud did, and after they escaped Zack was killed and Cloud pretty much assumed his identity. Hence Cloud was no clone but since he had Jenova cells injected into him he could be controlled by Sephiroth. As for Hojo saying he was constructed "piece by piece" he was not, Hojo must have mistaken him for someone else.
Sources: Lifestream, disc 2 - Shinra Mansion basement, disc 2 escapee reports - Northern Cave disc 2 with Sephiroth and Hojo.
Why are there two Sephiroths?Are there two Sephiroths? Yes and no; the real Sephiroth is in a large materia at the northern cave. The one who can fly and such was like a shadow of Sephiroth, controlled by him.
Who is Zack?Zack comes from the town of Gongaga, where his parents live. He met Cloud while with Shinra. Also, Zack was really the person in the disc 1 flashback and not Cloud, who was actually the masked MP accompanying them.
Sources: house in Gongaga (any time), lifestream disc 2.
What happened at the end?It's very hard to actually know what happened at the end so this is really my opinion here.
Was Aeris resurrected? There's some very strong evidence that would support her being resurrected. First, a conversation between Cloud and Tifa during the final FMV...
Cloud "......I think I'm beginning to understand. An answer from the Planet... the Promised Land... I think I can meet her... there."
Tifa "Yeah, let's go meet her."
I assume that they are talking about Aeris. Then there is the brief glimpse of Aeris at the end, and...
Tifa "I wonder what Aeris felt... when she was on that altar...?"
Cloud "I'm sure she wanted to give her life for the planet..."
Tifa "Really? I wonder? I don't think that's it at all. I think she didn't think she would die at all, but that she planned on coming back all along. She always used to talk about the 'Next time'. She talked about the future more that any of us..."
Did all people die?Probably not, Bugenhagen said there was a chance that Holy could kill everyone, but it seems that Holy wasn't actually doing anything by the time Aeris controlled the lifestream to stop meteor. Everyone in Midgar likely died considering the condition of Midgar in the Red XIII FMV 500 years later.
How did Red XIII have kids?There are two ways, either Bugenhagen was wrong and there were more members of Red XIII's species, or he could have just found a human that didn't mind Red XIII being an animal, (like in Hojo's plan to mate Aeris and Red).
Was Nibelheim burnt down?Yes, Sephiroth burnt down Nibelheim.
Then why is it back?Shinra rebuilt it and hired actors to be the townspeople as a cover-up.
Sources: Check Tifa's desk on disc 2/3.