This page of the Final Fantasy 7 Remake guide describes the mechanics of leveling up.
Fighting and defeating enemies in the game will get you Experience points. These points will allow you to unlock higher levels of experience. When you unlock the next level, your statistics will improve, and the character will become more powerful - your maximum level of HP, MP, attack force, etc. will increase.
The prize for fighting is:
- Exp - experience points that help you unlock the next level.
- Gil - an in-game currency that allows you to buy new items in stores.
- Items - such as medicine and other accessories.
- Weapons proficiency. The more you use a given weapon, the more proficient you are with it. When you reach a certain level, you unlock, among others, new attacks for weapons and special skills for your hero.
- AP (Exp matter) - Matter, special bullets in weapons also level up. This allows you to use more powerful abilities such as Fire - Fira - Firaga.