@ wauti clan would ff7 then become one of those games that will try to use every last cycle of my processor.(i.e no matter what 100% cpu use) if so then i think its a bad idea..
If FF7 can use all your CPU's power, I think you need a new PC.

Kidding aside, that's really not a good argument to avoid this option.
Most games do this, any modern game is going to use every CPU cycle it needs to run the game full speed. Assuming the game is using VSync\frame limiting, it will only stop consuming CPU cycles once the desired 60fps has been reached.
If you remove the limiting(ie, no VSync\frame limiting), it will allow the FPS to go beyond 60fps, and it will keep increasing as long as you have CPU power to spare, using all of your CPU power. (Unless of course the programmers added some additional code to keep it under control. By checking FPS vs. CPU usage percentage, but I doubt many, if any do this.)
So it's a bit hard to give you an accurate answer here, but the bottom line is this, if you have a problem with a game using all your CPU cycles, use VSync, or any built in frame limiter the game may have, or else it will.
I hope that explained it, it's kind of a tricky question.
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As for the rest of the questions.
A game loop is just a loop in the games code, this loop usually updates all the games individual parts. (We are ignoring multithreading, etc,. For simplicities sake.)
These parts include, renderers, physics, controls, sound, etc,. (AKA, game logic.)
Loops work like this.
Loop Start
Do Something
Do Something Else
Loop End -> Return to Loop Start, Repeat.
(This process is a loop iteration, ie, going from loop start to loop finish, is one loop iteration.)
Now, in most games, you will not want everything updating every single loop iteration.
So you do this.
Loop Start
Counter+= 1; // Count Iterations
Update Sound // Updates Every Iteration
if (Counter >= 2)
{
Update Animations
Counter = 0; // Reset Counter
}
Loop End
That would make animations skip a frame(this is called frame skipping), and animate every other frame. (As opposed to every frame like sound in the example above.)
Using mathematical formulas, you can control when animations get updated, and keep them at the desired speed, no matter how many FPS you are getting.
(FPS is the amount of loop iterations that occur within a single second. A loop iteration is also known as a frame, thus the term frames per second.)
I hope that's more clear.
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As for benefits, think about loading, if everything is capped at so many iterations per second, say 30 iterations(ie, 30fps), loading is also capped. So the game loads textures, and such, slower than it could.
By locking animations, and unlocking other stuff, you can make the game load faster, and process other stuff faster, while still animating at a fixed rate. (This is great for loading, and processing input, anything you want happening as fast as possible.)
In FF7's case, you can expect faster save times, faster area transitions, smoother overall feel, more responsive controls, and probably no more hitching, stuttering, etc,. (No matter what mods, or resolution you are running, ie, FF7 is NOT that demanding of a game compared to modern games.)
Sorry about the novel, this is why I was being somewhat vague to begin with, it's rather complex.
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Edit:
@Seif, you are correct, I was just offering a solution that was better than padding all the animations, figuring out how to slow down the camera, slowing down menu's, etc, etc,.
Btw, I also recommend this method for another reason. Think about it, the game is running at super speed @60fps, correct? (I saw the video, it looked pretty fast.)
So, do you think padding animations will fix scripted events? NPC's will move from point A to point B at super speed, regardless of animation padding, so it will have normal speed animation(with padding), but still move at super speed(on their scripted paths), so it won't look right at all.
Seif was right on with the frame based stuff, there is a lot more to fix than you guys are taking into account. So, if you're going to do it, you might as well go all out, and basically fix the port. (Which is what I'm suggesting, and explaining.)
Seif was also right about some things not being designed to work that way, so you will still have figure out some stuff on your own, basically, add what I suggested, then see what's still working wrong, and fix it. (I would tell you if I knew, but I've never re-ported FF7 via hacking b4, so I don't know the specifics, sorry.)