The power of Death Penalty is determined by the amount of monsters Vincent has either killed in total, or just with Death Penalty... I forget. Never-the-less, it's based on kill quantity.

vincent and barret are the only two characters capable of damage overflow. this is because of how their final weapons are structured. barrets is just based on mastered materia. It's a game glitch, but not technically a cheat because it just requires you to master materia, or in vincents case, kill enemies. This means that after you kill a LOT of enemies with vincent, the death penalty would be able to kill some really hard mobs with just one hit, although they have over 10000 hp. The figure will appear will be the standard 4 figure number, but that's the overflow, or in other words, in ADDITION to killing the enemy this is the damage left. But that's just in glitch cases. Which means you need to spend oh about 300 hours in gameplay, but the end result is killing emerald and ruby weapons in one shot, and of course, all the bosses.
But then again, you can finish ff7 at any level, I've spectated someone complete it with around 1400 hp, with the old curse ring, powersoul-low hp combo. Anyways, hope that helped

Yea his weapon is based on how many kills he has in total. The easiest way to get it up is to equip Mega-All and Deathblow. Then go fight some crappy enemies around midgar and watch his damage rise lol.

I think 1349 kills gives you 9999 damage. Its total kills though not kills with Death Penalty.