The best way I’ve found to make it work is to rename your save file and start the emulator using disc 2.
For example, if your game files are:
Final Fantasy VII disc 1.img Final Fantasy VII disc 2.img Final Fantasy VII disc 3.img
You should also have a filed named:
Final Fantasy VII disc 1.srm
I can’t look right now, but I’m about 95% sure the extension is “.srm” on the save files. These are created the first time you start the game, and will contain any game saves you’ve made to the “memory card.” I’m pretty sure any time a PSX games asks you to swap discs, it lets you save first. Save the game and exit the emulator.
To continue on disc 2, rename the save file as:
Final Fantasy VII disc 2.srm
Then start the game using the disc 2 file. It should recognize the renamed file as the save file for that particular disc.
I’d also recommend backing up the original save file, just in case.