The W-Item cheat is an easy way of building up unlimited quantities of certain Items in Final Fantasy VII. The impression I get is that it's actually not a deliberate cheat built into the game, but more of a bug.
First of all you need to know where to find the W-Item Materia. In the return to Midgar at the end of Disc 2, when you're in the Subway, head down or South and keep going along the train tracks. When your team tell you you're going the wrong way, just ignore them. Eventually you'll reach the end with a save point and the Materia.
Simply equip the W-Item Materia and get into a battle. In the battle, select an Item using W-Item and go ahead as if you're using it. Then select the second Item, but this time don't use it - just select it and then press back (circle then cross on a Playstation controller). You will see you now have one extra of this Item. Keep pressing select then back to build up as many of the Item as you like, up to the total of 99.
This tip is particularly useful for building up Megalixirs and Hero Drinks before fighting Emerald or Ruby Weapon, or Elixirs when fighting Magic Pots!