I think it's both and/or probably some of the cutscenes are like in-game engine pre-recorded cutscenes instead of true 3d realtime cutscenes like what Naughty Dog did with uncharted 2 cut scenes back on Ps3.
The best way to describe the Final Fantasy VII remake is “fleshed out.” It’s like the PS1 version of Final Fantasy VII was an outline and this is the final paper. Whereas in the original game you’d see a few dialogue exchanges that were meant to broadly convey feelings—Jessie being flirty, Barret trying to convince Cloud that the environment is worth saving—here there are fleshed-out conversations, genuine personality, and dialogue with a surprising amount of warmth. There are some clunky lines in there, but it’s fun to watch.“While the development team finishes the first game of the project, they are also planning the volume of content for the second. Due to the work already done on the first game, we anticipate that the development of the second game will be more efficient. However, for now we would like to focus on the development of the first game.”
Jessie, a member of Barret’s Avalanche eco-terrorist group, has more dialogue in the 30 minutes of footage I saw today than she does in all of Final Fantasy VII on PS1. Wedge and Biggs have more personality. There are cut-scenes around every corner. It feels like a completely new game.Barret: You gonna stand there and pretend you can’t hear the planet crying out in pain?
Cloud: You really hear that?
Barret: Damn straight I do.
Cloud: [after a pause] Get help.
I think so. And just read a comment mentioning the next generation console:Hrmm, so this could easily be a 6 year or more project?