Power? Now THAT's a good one!
...Really, a weapon of that size would have been ceremonial at best, a test of skill to any blacksmith whom dared to take the art of swordsmithing to the maximum expression.
To boot: German zweihanders, arguably the largest weapons that could be wielded in battle, had about 5 ft. from blade to pommel. These were straight-edged weapons, usually with a flamberge edge (a wavy edge which was supposedly good when used to parry because of the curves causing vibrations; evidently, this is false and it's mostly decoration), and with leather or another strong material holding the ricasso (the part of the blade that's closest to the hilt guard and that generally had no edge, generally longer so that a knight could wield the sword in order to thrust). German zweihanders had two main techniques; either cutting overhead or through a swath (less probable because of the sword balance) or thrusting, as if it were a lance (the typical Landsknecht tactic, generally coupled with spears for this move).
What does this have to do with the weapon? Certainly, the zweihander, which is a German term for "two-hander", which was wielded by large and strong men, is the closest thing in size to the Masamune; any longer, and it was mostly decoration. This is VERY important; a blade that extends more than 5 feet is already hard to swing, let alone hold in the stance that Sephiroth uses it. Over 6 feet, and then you have balance issues; you couldn't hold the sword without the blade itself bending downwards. To create a katana of that size, you'd need at least 70-74 inches of a steel sheet, which should be folded thousands of times; now, consider that the weapon has to be folded all those times almost integrally, or else you would have a blade with severe deficiencies regarding hardness in some parts. If the sword was so big, not only it has to be extremely heavy, but also strong enough to allow the blade to remain erect while gravity does its work. The curvature of the blade is not enough to handle that; while it provides a decent backbone, it's still not enough to handle the balance, so eventually the weight of the blade itself would cause it to break. Now, consider how Sephy uses that weapon; he uses it as a regular swordsman could, when a weapon of that size behaves more like a naginata, which was used to thrust (rarely) and do two-hand swaths at a range.
Just so you know: the ō-dachi (which I reckon must be the nodachi) was mostly used to cleave horses, because something of that size and sharp enough to cut through bone would be capable of cleaving a horse in two. It was highly unpractical for anything aside that, because the sheer size precludes proper kenjutsu technique. For a katana to be appropriate for the wielder, the sword had to be held with the grip close to the tsuba (guard); if the sword barely touched the ground, then it was the right size. Consider that the katana was mostly used with a two-hand grip, only occasionally held in one hand (if the blade was shorter or the weapon was lighter, or if the warrior was in a horse), much like hand-and-a-half swords (which were weighted between the appropriate weight for one hand and the appropriate weight for two). To use a nodachi, you really need to change your entire technique, preparing for the swing for maximum output; if anything, assume how a batter prepares to hit the ball, except the ball is the size of a wrecking ball (and goes roughly at the same speed). And it was aimed at the feet, so that the horse fell, the warrior dismounted from the horse, and then the warrior would draw a smaller weapon to engage in combat.
All of this is mostly info dump, but it serves a few purposes: the sword simply is too long to be used by a normal man (notice that; it's too long to be used by a normal man), and the blade too long to resist (meaning that either the sword is pretty much magical to compensate for the sheer weight, or the swordsman has excellent coordination with the blade's balance and the blade itself is resistant enough to remain erect despite the large area, which shifts the center of mass ridiculously farther than the swordsman may be capable of handling). An ō-dachi would have to be smaller than Sephy's blade in order to work, or Sephy's usual techniques would have to thrusting techniques, with at least one foot of the blade having a false edge (shaped as if it has an edge but not sharpened), with him holding the weapon within that false edge just to counter the balance. So it's not really that the ō-dachi was powerful; the ō-dachi was quite impractical and usually a one-use weapon, less effective than the yumi (longbow, the true tradition of the samurai), naginata or katana in actual combat.
Also: it's mostly a combination of irony and misaimed tradition. Generally, the Masamune is considered the most powerful weapon, but the tradition states that the weapons forged by Masamune were not very effective in terms of killing power, having a more metaphorical feel (instead of cutting the leaf, thus showing how effective the edge was, the leaf circles the blade, showing the weapon's willingness to forgive, hence the mastery of the swordsmith in creating a weapon that does not kill). The irony lies in that; it is meant to be a powerful weapon, when in reality it's mostly a metaphor about perfection and peace. The misaimed tradition comes from the game itself perpetuating the irony.
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