It does take TAY into account.
Admittedly, I started dreaming up the plot before I knew TAY existed, so some changes had to be made here and there.
Some characters will be there - Ceodore and Ursula are both main party characters. Some are gone completely with no real rexplanation I've thought of - the Eblan Five are nonentities, as will be I think the little girl maenad Rydia adopts in the end of TAY. Some will be there but not playable, like Edward's girlfriend (you know... Whatsername). Some will be gone, but for reasons that are fully explained, like Leonora (sorry... Spoilers, dearie).
Also, I started really working on this after I learned the basic plot of TAY but before I had seen the ending, so as it stands there are references to the crystals having shattered, as though they never came back. So now that I know they did come back, I guess I have to rework it so that they are back but no longer have their power. That Cid had been drawing on the power of the wind crystal to make the airships go is kind of an immutable plot point, as is the loss of the power of the fire crystal for the Damcyan hovercraft.
Have you played the original demo yet? It'll take less than an hour of your time, and if you play through, you will get to a sort-of developer's room that will divulge a lot of plot details if you want them.