The 'Bad' ending in interactive media is usually reserved for 'failure' because you failed to win or complete the game in a way that realistically would result in a 'good ending'. Hence, if it was a 'requirement' to beat Sephiroh using Omni-Slash and you had to aquire it through gameplay, then it'd make sense if he killed everyone or at least some of the team for a bad or bittersweet ending because you didn't bother to learn the ultimate move (FF7 just gives ya the move regardless to beat him with, hence it is a non-rewarding ending).
In videogames, the 'Good' ending is like a reward for playing. It gives a sense of fulfillment and completion for people who've played the game and fought as the noble heroes. However bittersweet endings (Eg. MassEffect2 were say half your team dies, yet you saved the universe) is more or less a mixture of reward and defeat, but also serves as a reminder of past events (If there is a sequel).
In books or movies however, failure or bad endings serve more of a morel purpose. Usually in a situation were 'Everyone' dies it could be meant to symbolize how the good guys don't always succeed, or how no matter how hard we try sometimes we cannot overcome the odds. Other times a 'Bad' ending is also used as a transfer into a sequel or to simply kill off any notion of a sequel. If all the heroes or some die in the first, it gives a purpose or motivation behind the new heroes. Similarly if 'the world gets destroyed' then there is no chance of a sequel.
Or some people are just kinda A**holes and figure that Trolling the audience is hilarious, so you lead everyone on and on only to crush your hopes. (What I forgot to rant about is the 'Memory' that some people invoke through 'bad' endings. It's the idea that the game, book, or movie will have a longer lasting impression if you mourn or remember those characters you got rooting for whom only served to die or disappear before your very eyes).