Overrated? Probably, but primarily because of the fanbase. (Which is legendarily one of the most annoying fanbases out there, next to Naruto and Dragonball Z.)
It was a massive shift from anything in the final fantasy series until that point: 3d Graphics, High-Tech world (I don't count FF6 as high-tech... steampunky I give it, but not high tech), and a grittier, less heroic main character. (Which unfortunately was poorly translated into FF8, giving all final fantasies the steriotype of being emo, even though FF9 and 10 had much more energetic heroes). The materia system was innovative and different, and, assuming that the player had prior experience with Final Fantasy, relatively simple. (Final Fantasy as a whole has never been good at addressing how powerful a spell or effect is without tacking on a 2, 3, ara, or aga to the end of something.) It made people think much harder about weapons and armor before tacking them on.
Looking back on it now, it's not quite as amazing... primarily because squaresoft has modeled almost every final fantasy after 7 after it (FF9 excluded... and honestly I find 9 better than 7).
Honestly, I could see Square-Enix making a boatload of money by re-making the game with updated graphics and added voice acting... Hell, I'd buy it.