A shader doesn't necessarily (or even usually) aim to literally shade the characters or models. "Shader" refers to a graphics effect that is applied after the frame is rendered. It's like an emulator filter. In this case, what it's doing is trying to copy the look of an old TV, which FF7 would've been designed for. Perhaps rather bizarrely, a CRT-style shader or filter is likely to look even better when the game itself is being rendered at a lower resolution, if only because its main purpose is to solve the same problem that higher-resolution content and output is also solving.