The Real Story

Everyone thinks they know the FF7 backstory, but very rarely will two people agree on more than the major characters who laid the groundwork for the story played in the game.

Very little of the backstory is explicitly explained, however much is hinted at and implied. What’s actually told us in the game? Shinra discovered what they thought was a Cetra, the ancient race of the planet. This was Jenova. Professor Gast was in charge of studying this creature at the Shinra Mansion in Niebelheim. While working with Professor Gast, Hojo definitely had a relationship with Lucrecia. He is seen kissing her, and they have a child. At the same time, Lucrecia and Vincent probably had a relationship on the side. This occured while Hojo and Lucrecia were assisting Professor Gast in the study of the Jenova specimen. When Hojo and Lucrecia decided to experiment on their unborn child, Vincent protested. Hojo shot him, probably either because of jealousy over Lucrecia’s feelings or because Vincent tried to stop him from doing something. He then altered Vincent’s body and gave him his metal arm.

Hojo and Lucrecia went ahead with the Jenova Project, and she eventually gave birth to Sephiroth. She never got to hold her son, though, and probably died shortly after his birth. Sephiroth was raised to be the ultimate soldier (and SOLDIER ^_^) though he was told his mother was Jenova. He was never told who his father was.

At some point Gast came into contact with a real Cetra, Ifalna. They fled Shinra and hid in a small Northern village, and eventually had a daughter, Aeris. Hojo tracked them down and killed Gast, but in the confusion, Ifalna escaped with Aeris. Ifalna got Aeris to Midgar and left her in the care of a woman there before dying. Hojo didn’t stop searching for them, however.

Five years before the game begins, Sephiroth went to Niebelheim on a mission. In the reactor there, he discovered mutants that Hojo had been creating with mako. Already disturbed and dangerously unstable, Sephiroth went to the library in the Shinra Mansion and discovered Hojo’s notes on his creation and birth. Driven completely mad, Sephiroth burned Niebelheim and took the head of his "mother" Jenova from the reactor where her body was kept, but he was knocked into a river of mako energy by Cloud (who was working for Shinra at the time.)

Hojo, in what was probably an effort to replace Sephiroth and salvage over 20 years of work, attempted to create various clones. Among these experiments was Cloud, who’d been impaled by Sephiroth and picked up by Shinra when they came to inspect the damage. However, Hojo viewed Cloud’s case as a failed experiment. Cloud escaped with his friend Zack and they made their way to Midgar. When they were nearly there, they were ambushed by Shinra soldiers. Zack was killed, but they left the confused Cloud for dead. Cloud finally made it to Midgar, adopting much of Zack’s identity to himself.

And that’s about where the game begins… 
 
from: http://www.hojo.org/index.php?page=backstory