Does Photoshop 7 support RAW file format? Or do I need any other software for that?
So... the first support of Camera RAW was introduced with Photoshop 7.0.1, in August of 2002. I don't know what camera you have, but the odds of that supporting any camera model created beyond 2003 is approaching zero. I think you'll find that you'll need other software to convert before using.
Photoshop 7 supports some RAW file formats via the concurrent version of Adobe Camera RAW, mainly those from cameras already in existence at the time PS7 was released. As Adobe updates ACR to support newer cameras, compatibility with the newer versions of ACR also requires newer versions of Photoshop. What version of Adobe Camera RAW you need depends on exactly which camera made the RAW files in question. Once you know what the earliest version of ACR is that supports your particular camera, then you can find the earliest version of Photoshop that supports that version of ACR.
Here is a link with a comprehensive set of instructions from Adobe that addresses the issue you are encountering. Which solution you use will depend on your answers to the questions that are asked along the way in the link below. Since you haven't indicated which camera created your RAW files, it is not possible to summarize the instructions to fit your exact situation.
Here is a link that lists camera models currently supported by Adobe products via Adobe Camera Raw and the earliest version of ACR that supports RAW files from each camera. The chart also lists the earliest version of Adobe Lightroom that supports RAW files from each camera (via the listed version of ACR).
If you choose to use Adobe DNG Convertor to convert your RAW files to a DNG version supported by your older version of Photoshop, be aware that the conversion may remove some of the functionality and flexibility you would have if you used a newer version of ACR/LR/PS to work with the RAW files directly. This will probably be most noticeable with regard to color and noise profiles for newer cameras used with older versions of ACR/LR/PS. Again, it all depends on which camera (and more generally, which manufacturer) the RAW files are coming from.
If you read between the lines of this announcement from Adobe, you see that in the past some of the file encryption methods found in some Nikon RAW formats has caused some users to question the level of cooperation between Nikon and Adobe in providing solutions for raw processing. In other words, the encryption Nikon included in the NEF files from certain Nikon cameras caused problems with opening those files using Adobe products, presumably because Adobe was forced to reverse engineer the demosaicing algorithms for those encrypted files. Nikon now seems to be, at least according to Adobe, sharing the encryption keys with Adobe in the same way they do with DxO Labs.
That list will tell you the lowest version of Photoshop that supports your camera.
If your camera is not supported by PS7 you either need a newer version of Photoshop, or you can use Adobe's Raw to DNG converter to convert your cameras Raw files to appropriately versioned DNG files, which can then be opened in Photoshop 7.