Back then , to save your progress in a ps1 game it was necessary to use a memorycard. So is normal if the game searching for one when you chose to save your game. Of course you don't need a actual memorycard, the all process is virtualized.
So when you want to save from the game, select the memorycard and chose to save. You can find the save file in the game folder, it will be something like this :
Final Fantasy VII.srm.