How many villains from games do you know that got so popular that you can now buy a plushie doll of them?
What I'm trying to say here is, there are hundred thousands of Sephiroth plushies out there in childrens rooms and fan shrines. Sephiroth is a staple in any freaking cosplay party.
I have played through FF7 on PS1, and 2 years ago again on Switch. Don't underestimate FF7 - It has one of the most hardcore fanbases in the world. Much about the game impacted so much in the gaming industry at the time. That title in particular also made the first Final Fantasy movie possible, and FF merchandise.
Even if FF6 and others are better in many aspects, FF7 was the most successful, the most hyped and talked about, and brought the series into the mainstream. A cult gathered around its lore! Many were possessed by the contents of its story, as FF7 did things in an RPG no one else has done before. It singlehandedly opened the floodgates for JRPGs in Europe, a time where Nintendo did not dare to release a game like Super Mario RPG, or EarthBound, or Final Fantasy 6, or Dragon Quest, or Chrono Trigger, in Europe.
And having a final boss like Sephiroth presented with full motion video cutscenes, minute long magic attacks, a brooding song with vocals, and relentless attack patterns that needed a unique strategy was something new and intriguing at the time.
So, if Sora is number 1 on so many wishlists and you can't get him because of Donald, Goofy, and Mickey, then you need to get another big shot from the same company to make everyone shut up which Sakurai just did with Sephiroth.
And yeah, usually one fighter is enough to represent a third party series. But in this case, more songs, another stage, and more spirits are welcome (because Cloud came with almost nothing).
Though, that means goodbye Chrono Trigger, Secret of Mana Hero Randy, Terranigma Hero Ark, fan-favourite Geno, Bubble Bobble, Space Invaders, Lara Croft, and phew, Sora.
I personally can't wait to play as Sephiroth. I bought Fighters Pass 1&2 because "everyone is here" and whatever they release, it can only be a brandnew fighter with a brandnew stage, spirits, and music, so that's good enough for me, even if I don't like to play all of them.