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The "Morph" command does considerably less damage than a normal attack, but if it kills the enemy, the enemy may change into an item.
Generally speaking, an effective technique is to lower the enemy's HP with higher-powered commands than Morph, and then use Morph once the enemy's HP has dropped low enough. It helps to know the enemy's HP; the Sense command materia can be useful for this.
You have to be careful not to defeat the enemy when you're using the higher-powered command; if you've ever played Pokemon, it's a little bit like when you have to lower the monster's HP enough to use a Pokeball; while making sure not to finish off the enemy too quickly.
For easier results use characters' ultimate weapons; these will deal approximately 1/3 damage of a normal attack while morphing rather than 1/9. You can find details of ultimate weapons here.
The exceptions out of the ultimate weapons are Yuffie's Conformer, which deals full damage even when morphing; Barret's Missing Score, which can work well with enough high AP materia in it; and Vincent's Death Penalty, which is effective after Vincent has killed enough enemies.
You can find the "Morph" materia in the Temple of the Ancients.
N.B. This is not a complete Morph List. It aims to feature the more significant items you can morph in Final Fantasy VII only.
In the game, to view enemy names, toggle on the in-battle information display by pressing Select on a PS1/PS2/PS3 controller, or the central touch bar on a PS4 controller.
Source items are a great way of making your party members ultra powerful in FFVII. You will pick up a few as you play through the game, but really making good use of them will require a lot of patience and clever use of the Morph command.
There are 2 great places to find stat Sources and effectively farm Sources in Final Fantasy VII. The first is the exploded reactor in Gongaga; here you can morph Heavy Tanks for Power Sources. They're very easy to morph in just one hit once your level is quite high.
The second place is the Sunken Gelnika, the crashed airplane which you can explore underwater once you have a submarine. Each of the enemies here can be morphed into a different stat source: Power Sources, Magic Sources, Guard Sources, Mind Sources, Speed Sources, & Luck Sources. These cover all 6 of Strength, Magic, Vitality, Spirit, Dexterity and Luck. As mentioned earlier, you are advised to equip characters' ultimate weapons while doing this.
To use a Source, just enter the Item section of the menu, select the Source, and choose a character to use it on. The maximum a stat (in this case, Strength, Magic, Vitality, Spirit, Dexterity or Luck) can reach is 255.
Click here for much more on stats in FFVII.
And last but not least, you may be wondering which of your party members it makes most sense to give Sources to. Sources are good for any party member; but given that for most of the game Cloud is a default party member, it makes most sense to give sources to Cloud!
Find this Morph Guide useful? Then you'll probably like my Steal Guide and my Items Winnable from Battles Guide!
My FFVII YouTube Channel - PLEASE SUBSCRIBE!
Items Winnable from Battles Guide
Items Winnable from Battles Guide
Wall Market Cross-Dressing Guide
Turtle's Paradise Flyers Locations
Materia Selling Guide (make loads of Gil)