This game is a unique mix of things that are done really well, and things that are done really poorly. The good ultimately outweighs the bad, in my opinion, leaving the score at around 60/40.
The good: amazing production values, awesome soundtrack, fun and addictive battle system, shittons of game content in the mission system, and the cool materia fusion system.
The suck: long-ass, un-skippable cut-scenes (often before boss battles), unintelligible faux-profound ramblings from the character Genesis, encounter triggers and encounter frequency, bland and empty environments, the DMW system constantly interrupting your battle flow for non-interactive slot machine randomness, long-ass, unskippable limit break animations.
There are also issues with over-leveling as a by-product of doing the side missions. As I mentioned, at the end of the game I had only done around 20% of them, and I was able to beat the ever-loving shit out of all the final bosses without breaking a sweat. This was on normal. I'm told hard mode is just obnoxious because all it does is up enemy HP by insane amounts without really changing enemy tactics at all.
As for the plot, and it's connections to FFVII proper, well, that's more of a subjective thing. There's a good 9 or 10 years between me and familiarity with FFVII, but for the most part it didn't matter. Zack's story is pretty compelling in it's own right, and even without being able to nail down every single reference or thing corresponding to something else in FFVII, I got a sense of what Cloud's motivation should be going into that game (even if he's an amnesiac or whatever for a while, there). Zack is also a really likable character, especially considering he's a Final Fantasy protagonist post-FFVI.
While the game has some issues, it's a lot of fun, and it's definitely one of the very top echelon of PSP titles, leaving most portable games far, far behind in the dust. So, a flawed gem, but a shiny and valuable one nonetheless.