You mean reunion in Niblheim,caledor...?
Yeah. Cloud remembers having seen Tifa five years before of course. The point is that he tells her that so nonchalantly cause he thinks she should remember too, thinking of himself has Zack. And when he's found by her in Midgar he's in SOLDIER uniform, the one that Zack made him wear before escaping from the Shinra mansion. Basically to Cloud everythink makes sense cause he was beside Zack the whole time, but Tifa obviously can't explain why he knows everything about Nibelheim AND at the same time states he was the SOLDIER sent there.
And yes, Sephiroth never did anything to Cloud. It's the combination of the trauma of Zack's death, the Jenova cells infused into him, his dreams and his weak personality (he would have never faced Tifa again if it meant to tell her he failed to enter SOLDIER) the catalysts for his mental breakdown. Basically he manages to create a fake persona that makes up for his every failure or trauma. Sephiroth controls Cloud later in the game, using his confused state and his power over the Jenova cells inside him to push him over the edge.
Long story short, Tifa thinks it's seven years cause Cloud head was covered by a helmet the whole time being a shinra infantryman, Cloud thinks it's five years cause he remembers having seen her in Nebelheim and has no shame in saying that cause he thinks he was Zack. The only thing that could not make sense is that Tifa actually sees Cloud in the reactor, when he "saves" her shortly before throwing Sephiroth in the Lifestream, but since Tifa faints moments after that she might have tought of that event as the manifestation of her delusions due to their promise.
