It definitely works like on SNES. Both sound chips were made by Sony. For both consoles, Squaresoft is the main user of the feature, and mostly for sound effects.
Even though there is parallels between both effects, it's abusive to call pitch modulation FM because typical FM is more than that, and besides pitch modulation is more than FM in that it can use something other than sine waves.
It's not just FF7 but pretty much all Squaresoft game where the effect is widely used for sound effects, including FF8, FF9, Chocobo's Dungeon, Legend of Mana, Chrono Cross, Threads of Fate, and possibly other games.
I don't have any example where this is used for music, but the latter games uses dynamic-channel allocation so this wouldn't cope well with pitch modulation. Thus if this is used for music anywhere it would most likely be in either FF7, Front Mission 2 or Parasite Eve, all latter games uses dynamic channel allocation.