Sephiroth was more than just the bad guy from Final Fantasy VII, he was the definitive bad guy of the Final Fantasy series. I've played them all (well, the ones that've been translated), and none were as starkly evil and methodical as Sephiroth. Sure, one might argue that Kefka was a pretty evil guy, but he doesn't wear Eau d'Evil as his trademark scent, nor does he walk around with a big fucking sword and a black cape, or kill a close friend of the main character's. Sephiroth is so arrogant and powerful, he doesn't need to use an evil laugh to communicate how utterly bad he really is.

Spoilers ahead

In FF7, Sephiroth is concerned with the promised land, and merging directly with the planet. He believes that by using the black materia to summon Meteor and rip a gigantic hole in the lifeforce of the planet that it will absorb him and he and the planet will be one. To this end, he goes about randomly killing people (He seems to almost be the epitome of chaotic evil), destroying towns, creating/releasing big fugly creatures to kill the main characters, directly controlling the main character, and generally being a not too nice guy.

His downfall seems to be the very trait that makes him so evil, his rampant arrogance. He laughs (and rightly at first) at Cloud as he tries to stop him from doing evil things, and then later on, when he should just use his massive planet energy or whatever to create a BIG FREAKING AVALANCHE (no pun intended) to kill Cloud, he just lets him down into his crater and fights him then and there. Bad Idea.

Sephiroth is quite often compared to Kefka in terms of evilness, but I think Sephiroth takes the cake. Kefka might have destroyed towns and been a Machiavellian bitch, but Sephiroth was a mutant alien energy creature bent on ripping a hole in the planet so he could be absorbed by it. Kefka got his power from other people, Sephiroth starts off as a level 50 badass with a big fucking sword and an almost Hitokiri Battousai-esque grimness about him.