I think you may be confusing two things. Classic mode in OS X is not there for running previous versions of OS X such as Tiger. It's there for running pre-OS X software -- e.g. software designed for Mac OS 8/9. If you have an OS 8/9 version of PS7, you can probably run it using Sheepsaver or Basilisk (see guide).
However, Photoshop 7 is well nigh ancient at this point. Do you have an upgrade plan? I think a $40-50 copy of Photoshop Elements 3 or 4 should be as powerful (and in some places, more) than PS7.