Its not quite Kingdom Hearts level bullshyt... but its definitely further off the rails than Xenosaga or a Metal Gear Solid which is saying a lot.
But without ruining your experience with OG and the other stuff, Sephiroth basically was okay with 'dying' but not losing completely. This is alternate universe that's been altered in more ways than one.
The overall implications are wild but it doesn't necessarily change any existing works because they're already done. What happened still happened, but characters have those flashback or memories as a sort of reference in some ways and Seph (as well as Aeris who's clearly not showing her complete hand.... she is out here handing out visions to Marlene and Red of all people) is using it as a playbook to push people in certain directions. I'd be upset if they didn't do a great job across the board with everything outside of the heavyhandedness of the plotghosts