I'll be honest, Sephiroth's one of my favorite characters, period. I like Kuja, and Kefka, for some of the same reasons. And I may have pissed myself the first time I fought Barthandelus, which to me is the mark of a good villain, even though his surrounding setting/story were...less than stellar IMO. But Sephiroth still wins hands-down.
I really, really, really like villains who start out as heroes. From a narrative standpoint, it's a great tool; you can make the reader/player sympathize with, even admire the character, and when you reveal them as a villain you basically create one of two responses - you either have an incredibly compelling villain whose motives are understandable, or you leave your reader/player wondering what the hell made the character turn "bad." Either way you've created interest. It's fucking awesome. But also, I really like being the reader/player in those scenarios. So Seph gets points there.
I also like that he's a petty little shit wrt Cloud, and that there's a certain desperation in his initial breakdown: to me this makes him more...human's not the word. More "real" than Kefka is. Sephiroth builds his own emotions up to this crazy, obsessive intensity, and uses things like "destiny" and "legacy" and blah blah blah to justify himself, but there's never really any secret that it's his emotions that drive him. He's not a woobie: he's a selfish, maladjusted genius child, who really only knows how to function in wartime, and when he runs out of enemies to kill, creates an illusory world where he's at war with the entire Planet. I find that shit fascinating.
I do think part of his strength as a villain comes also from Cloud and Aeris, though, and the way their arcs play off of his. If SE had plopped him down in, say, FFV, I don't think he would've impressed me as much.
...LAST THING. Since Kuja's on this poll instead of Necron, why the hell can't we have Golbez instead of Zemus. Because I might've waffled a bit on Golbez. FFIV was my very first FF, and I have a weakness for pretty much the entire cast.