Cosmo Canyon (Disc 1) - FF7 Walkthrough
Cosmo Canyon is the home of Red XIII who is known as Nanaki. When you enter the town there will be a scene between him and the front guard, after speak with Red XIII on the ramp leading up to the armor shop then head inside.
Purchase any weapons that you plan to use now - they all have better attack power however they don't have the double Materia growth that the weapons you have now do. It's a trade off and one you'll have to decide whether or not you want to make.
Note: Save some of your money for the super awesome Materia shop one floor up!
In addition to upgrading your weapons you'll want to inspect the Turtle's Paradise No 4 poster on the wall. Once you've done that exit this room the same way we came in and explore the bottom half of the town first. There is an elixir that we can find as well as Turtle's Paradise No 5 poster in the bar building on the ground level.
Elixir (Inside Bar)
As aforementioned there is also a Materia shop in Cosmo Canyon which sells HP Plus Materia as well as MP Plus Materia. They're both 8000 Gil each so you won't be able to buy many of them but they're insanely big upgrades for your characters at this point in the game. I'd recommend leaving your double Materia growth weapons equipped and popping one of these in them while doing the next dungeon.
When you're ready to advance the story forward continue up to the top of Cosmo Canyon and speak with Red XIII's grandfather in the observatory building at the top of the mountain. After a scene with Bugenhagen you'll want to go back down to the Materia shop and speak with Yuffie to form a party of 3 characters.
Return to Bugenhagen to continue the scene. Once that scene is over go down to the campfire in the bottom part of town and speak with all of your party members here, save Red XIII for last. After speaking with Red XIII you'll have to form a party with him in it - our next stop is the sealed metal gate near the weapon shop that stood out like a sore thumb. If you somehow missed it, go up Cosmo Canyon like you're going to the Observatory - when you get near the metal gate speak with Bugenhagen.
Steps for advancing story forward:
1. Speak with Bugenhagen at the observatory (top of town)
2. Speak to any party member and add 3 people to your party
3. Return to Bugenhagen and speak with him for a cutscene
4. Go down to the campfire and speak with all of your party members
5. Speak with Red XIII last
6. Go to the sealed magic gate by the weapon shop
Inside the metal door is Cave of the Gi, the next dungeon. Make sure you're well prepared as this place is harder than previous dungeons.
Fort Condor Battle #5: You can only do this Fort Condor Battle if your buggy didn't break down when you arrived at Cosmo Canyon.