Instructions
Visit a town and purchase as many White Curtains as you can afford. Since Tiamat relies solely on magical attacks, the White Curtains will halve all his damage.
Heal your party before beginning the battle. If you have healing items such as Cure or Cure All, use them until everyone is at max health. You can also use white mage spells to heal the party. Similarly, restore your mana with Ethers.
Approach Tiamat to begin the battle. He uses elemental attacks that affect the whole party, such as Thunderbolt and Blaze. The key to beating him is to preemptively defend yourself against these attacks.
Use White Curtains regularly. The effect lasts for several turns. Your characters have a white aura while it's active. Use another White Curtain once it fades.
Heal your characters when they've lost more than half of their hit points. You can use either curative items or spells like Curaga.
Attack Tiamat with your strongest characters while you devote the rest of your party to using curative items and White Curtains. Although Tiamat has a lot of hit points, the key to beating him is to slowly chip away at his health with physical attacks.