KOF '97 follows the same format as the previous KOF games, but introduces two distinct playing styles which the player can select before choosing their team: Advance and Extra.
Advance mode is based on the previous game in the series, KOF '96, but features a revamped Power Gauge. Instead of charging the Power Gauge, the Power Gauge is now filled whenever the player strikes the opponent or by performing Special Moves. The player can stock up to three Power Gauges. The player can use one stock of the Power Gauge to perform a Super Special Move or enter a "MAX" mode, in which the player's defensive and offensive strength are increased. Performing a Super Special Move while in MAX mode will make the player perform a more powerful Super Special Move.
Extra mode is based on the first two games in the series, KOF '94 and KOF '95. Like in those games, the player fills the Power Gauge by charging it or defending against the opponent's attacks. After the gauge is filled, the player enters MAX mode and like in Advance, their character's offense and defense will increase. The player can only perform Super Special Moves in MAX mode or when the life gauge is near empty and flashing red. When the player performs a Super mode in MAX mode while the life gauge is flashing red, then the Super move will be even more powerful. The Emergency Roll maneuver from KOF '96 used in Advance mode is replaced by the side-step from KOF '94 and KOF '95.
Despite the events at the end of The King of Fighters '96, the 1996 Tournament was a huge commercial success and sparked a world-wide fighting craze. Within a few months of the tournament ending, various large corporations had held smaller KOF tournament qualifiers and constructed special King Of Fighters stadiums around the world, building the excitement up for the 1997 tournament. News of the tournament spread through every form of media and fans and new fighters from across the globe come to watch the preliminary matches. Determined to harness the secret power of the Orchid, Geese Howard has created and entered a new '97 Special Team', which consists of Ryuji Yamazaki, Blue Mary and Billy Kane. Also, a mysterious New Faces Team, composed of three band-members (Sherrie, Yashiro Namesake and Chris) enter the tournament with the terrible intentions of raising Orchid from his slumber (It Turns out that in the back story of KOF '97, the American Sports Team (Heavy D!, Lucky Glibber, and Brian Battler) were originally invited to compete in the tournament, but like the same incident with Iori Yagami's team in 1995, they had their invitations stolen by the New Faces Team). Eventually, the Hero Team (Kyo Kusanagi, Benimaru Nikaido and Goro Daimon) wins the tournament and prepares to accept their hard-earned prize, but not before facing off against a psychotic Iori Yagami, who becomes possessed by the Orchid blood that flows through his body.