If this place seems a little familiar, it's because it's the same town you visited in the flashback at Kalm. It's Cloud and Tifa's hometown, too, so why not explore for a while? Actually, most of your conversations with the local folks will bring up more questions than answers. Also, be sure to talk to all the little black-cloaked guys, as some will give you items. If you want, you can stop at Tifa's house, put her in the party, and on the piano (remember the little tune Cloud played in the memory scene? (In case you forgot, it's: X, square, triangle, R1+square, X, square, triangle, R1+X, O, X, square, X). If you play the song right, you get . . . wait for it . . . 1 gil! That's just for now, though--when you come back here later in the game, your reward is much better.
Well, all the evidence of Sephiroth's whereabouts points to the Shinra Mansion, so we best be moving quickly. This place is kinda spooky, and so are it's inhabitants. Make sure you're in shape, because you'll probably want to spend quite some time in here if you want to get everything, and the enemies are the toughest you've seen yet. Watch out especially for the packs of Dorky Faces, which can give your people all sorts of bad conditions. Use Summon spells to take them out, since these can't be turned against the party by Confu. All you have to do here, though, is go down to the basement, into the library, and you'll find Sephiroth. He'll say some cryptic things, and then fly off.