Excessive weight gain during pregnancy can lead to the baby being born with a much higher fat percentage than the average baby.
This predisposes the baby to obesity and other lifestyle related diseases such as diabetes later in life. It is prudent to keep your pregnancy weight gain in check. In terms of a large baby requiring a c-section delivery, it is my understanding that this is not necessarily a criteria for a decision to deliver via c-section. I am also of the belief that larger babies are easier to deliver than really small ones, since there is more body for the musculature to contract onto and move.
The only time that the size of the baby will influence a c-section delivery is if you have a CPD (cephalopelvic disproportion). This means that your pelvic bones may not be able to move far enough to allow for baby to pass through. It would be my advice that you do heed some of your father-in-laws advice but not from a threat of a c-section point of view but rather from the long term health risk that excessive weight puts both on your baby as well as you.