FFVII - Materia - Overview
The materia system is pretty easy to use, once you get the hang of it. There are five types of materia in the game: magic (green), summon (red), command (yellow), support (blue), and independent (purple). The first three types are pretty straightforward. Magic materia allow you to cast magic spells (fire, cure, etc.); the level corresponds to the strength/type of spell you can cast. Summon materia allow you to summon creatures to attack on your behalf; the level corresponds to the number of times you can use the summon in one battle. Command materia give you different commands to use in battle (such as steal). Support materia are meant to enhance one of the previous 3 types of materia, and they only work if they are placed in a linked slot with another materia...when you link All with Cure, you can target the entire party instead of just one person, for instance. Independent materia give the character extra abilities (like more HP).How to Grow Materia
Materia grows by being equipped to someone who is in a battle, whether they use the materia or not. After each battle you get EXP points (which help your character's level increase) and AP points (which are like experience points for your materia, the more points your materia have the stronger they are and the more capabilities they have).Be careful because some weapons do not permit materia growth, although most do. There are some weapons that double the AP points your materia receive and a few that even triple the AP points--check out the list of everyone's weapons in the equipment section for more details.
When your materia gather enough AP they become full or mastered (this is not the same as MASTER MATERIA). A mastered materia is as strong as it can possibly get, it won't gain any more AP but it will cause a brand new version of itself to be "born" in your materia pack and you can keep using the mastered one or you can start growing the newly born one. So, for example, even though there is only one Contain materia in the whole game, if you keep growing it you can have as many as you want.
Raising money, EXP, and AP
This section contains info on some of the best places to get good AP for your battle time, it also includes such info for gaining EXP and gil. For a quick boost of gil sell off a mastered All materia, you get nearly 1 1/2 million gil for it!The best place to raise these things is outside of Mideel after it has been destroyed. It's true that the Crashed Gelnika raises these things faster, if you've got the sub to get down to it, but to refresh your HP and MP you need to use a tent at the save point in the entrance, and you don't have an infinite supply of tents. Of course if you have learned the White Wind and Magic Hammer enemy skills you can keep fighting, perhaps infinitely, without having to use any tents. If you got his route then you'll want to check out the room to the right when you first get in the ship, it has the better EXP, AP gain. The other benefit of building at the Crashed Gelnika is that you can morph the creatures here and get as many sources (speed source, luck source, guard source, etc.) as you want.
The other thing to do is go to Mideel. After Mideel has been destroyed you can always go back in and talk to the nurses up on the ledge, the nurse on the left will let you refresh your MP and HP for free as often as you like. (Of course this is only if you don't have a game shark; there are game shark codes to allow you to get 57,599 EXP and AP after every battle. There's also one to get infinite money. If you don't have a game shark you can still build up gil, EXP and AP, it just takes some patience!)
If it's gil you're after stick to the beaches; there you'll fight the sea worm. He has somewhere between 8 and 10 thousand HP and likes to cast darkness, so equip your characters accordingly. If you kill him you get a fair amount of AP and EXP and 5000 gil, if you run up and down the beach and fight him 20 times you've got 100,000 gil. Be warned that Earth based attacks and summons are absorbed by the sea worm, so don't use them. If EXP and AP are what you're after then stick to the forest around Mideel. You'll often run into a trio of silk-worm like Crysaleses, they like to cast sleep on characters, so equip accordingly. If you kill them you get around 1600 EXP and 240 AP. The other creatures you'll find (usually in groups of 3 or 4) are ugly green things called 'headhunters'. Killing off a quartet of these guys yields about 1900 EXP and 320 AP--not too shabby.
A third option (one of the favorites although it happens so late in the game that I have already used one of the two methods above and so have no use for it and in fact have never used it!) is to check out the Magic Pots in the crater. You'll need a lot of elixirs to do this (you'll probably need to use the W-item trick). In the Northern Crater take the first left then go up. Go through the first room that you come to. Now in this room just walk around and you'll fight two great enemies. The first are magic pots which give you 8,000 EXP and 1,000 AP each. They usually come by themselves or with a partner. To kill these enemies you need to feed them an elixir. Also in this room you'll find a rare threesome. They're called Movers, they're small orange-red spheres, I think (I've never seen them, of course I've never tried) and they give you 2,400 AP for the three of them and 160,000 gil (240,000, at least, with gil plus materia--thanks to Andy Ellsworth with the correction on this one). The only bad part is they give you no EXP points.
Here's a suggestion from Binky (I haven't tried this, let me know how it works for you if you try it). At some point when you're in Junon make your way to the underground area, when you get to the point right before where you'd get the sub you'll find a red alarm on a wall, hit the alarm on the wall and while wondering around Junon you will get into some battles with enemies that might not normally appear at that part of the game, they'll be some tough, but manageable battles and you'll get a generous amount of AP and EXP for your trouble. Of course, whichever location you use you should check to see if you've kept some of your old weapons and armor (you didn't sell them, did you?) because some of them increase AP for the materia equipped in them at 2X and even 3X the normal rate. For armor it's the Platinum Bangle and the Rune Armor--each of these doubles AP.