(sega cheif quote)
Alright, so start by getting the R02 Reunion mod and running it. Only select the Menu Overhaul (deselect everything else). This'll move all your data folder files + .exe into a back-up folder inside the FF7 folder (get rid of these if you have back-ups already, but maybe keep the .exe if you don't have another copy).
Now you need a Hardcore mod battle.lgp. Grab that and replace the one in your data folder with it. While you're at it, put the Nightmare scene, kernel, and flevel.lgp files in as well (note that you need the full flevel; the 'slim' flevel is more of a placeholder than anything else). You'll also need the Nightmare .exe. Get that stuff from the links on the Qhimm thread.
Now we need to add some files to the char.lgp. Download the Aeris Revival mod and it'll come with some loose char.lgp files. Decompile a char.lgp and stick the new files inside, then recompile it. You'll need ULGP for this.
Last things aren't strictly necessary; the title screens, custom music, etc. Download + place them in the necessary folders if you want them. If you don't put the custom OST in then the wrong music plays in certain places, making for some odd scenes according to the mod author (but I play with no music).
i have no idea how to do any of this.