*sigh* Sounds like we need another lesson in buying vs piracy.
When you buy a copy you are buying the rights to possess ONE copy. Buy more copies and you are authorized to own multiple copies, etc, etc.
This is regardless of where you get the copy. It could be an authorized retailer that is allowed to sell new copies or you are buying someone else's copy and license from them. While the video game industry doesn't frown upon this, it won't usually support second-hand purchase like this. (I actually ran into this one time when I bought a defective GBA game from eBay. Nintendo was kind enough to send me a replacement, but they were well in their rights to not do so.) Regardless, only one copy and license exists per unit purchase. What you do with the unit (the actual game and its data) is restricted. You are allowed to sell it if you wish or give it away
as long is the whole unit, but not make copies other than for backup purposes. Usually even having the game installed in multiple locations on a hard drive or multiple machines is against the EULA (I'm currently in violation of that, but I think FFVII's EULA for the PC version just says you can't have multiple copies RUNNING at the same time. As if they'd know.

).
Piracy is the illegal side of the coin. If you download a copy then you are obtaining it from an illegal source. You did not pay for the license to own it. It gets into a gray area here now. If you didn't purchase the right to own a copy then you certainly are breaking the law by owning it. The distributor is in more legal trouble than you, but that's not the issue. Let's look at your question again:
I myself have purchased 4 copies of ff7 psx and one copy of pc in my lifetime, plus traded for extra discs when ppl lost one from their set.
Now if I were to lose ALL of my current discs and data, wouldn't I be entitled to download this program again and again anad again, since I've paid for it MANY times over?
First of all, trading of incomplete units occurred here. That's a clear violation of the EULA's "give away in whole or not at all" clause. You've PURCHASED 4 PSX copies and 1 PC copy. That entitles you to owning 4 PSX copies and 1 PC copy. Unless someone gave you their entire set, that's all you're legally allowed to have. Even if you got disc one from one source and disc two and three from two other separate sources, that's still a pirated copy (that's the "in whole or not at all" part again).
Second. If you have a copy that you lost among your possessions, then obtaining another copy still is illegal. The copy you bought still exists and you have the right to THAT copy.
Third. If your copies BREAK or become otherwise unusable then you still have the rights to a copy, but not the media. This is the fuzzy area of piracy. Most companies would be willing to replace your discs if you give them the originals back they determine that you didn't just intentionally damage your discs. Software companies still look down on downloading another copy even though your original was damaged on the grounds that you obtained it from an unauthorized source. This isn't prosecutable by law I believe (you possess a license to own the product and you possess the product), but it's still negative.
Feel free to add any points that I may have missed.