This is a topic that has been covered here many times, like here
, and here
. The old Lugnet site had a whole sub-forum devoted to the topic
should read the hilarious Evolution of LEGO Sorting
by Remy Evard. Basically put there are four main systems:
1. No system at all, everything in one big tub.
2. By set - keep sets together (either assembled or as pieces)
3. By color
4. By part type (this could be as broad as 'bricks here, plates there' or as specific as '1x1 bricks here, 1x2 bricks there, 1x3 bricks over there)
You can also combine these types. For instance, if you've got a whole lot of 1x2 plates, you might further subdivide them by color.
Once you decide on an overall system, there is also the question of what containers to use - original LEGO boxes, plastic storage bins, stackable drawer units, tackle boxes, Ziplock baggies etc.
Personally I break up by major part category, then by subcategory, then further. I've got, for instance, a plastic bin for all of my bricks, another for plates, another for slopes, another for figs, one for "nature stuff" (animals and plant pieces) and one for "random stuff" (technic bits, big bag of wheels, boat hull, windshields etc etc etc.). Within the bricks bin I use gallon ziplocks to further subdivide. For instance, there is one for all of my 1x1 bricks, a couple for my 1x2 bricks, one for my longer 1xn bricks, one for my 2x2 and 2x3 bricks, a few for 2x4 bricks, one for longer 2xn bricks, and one for bigger nxn bricks. Within those I further subdivide with sandwich bags. For instance within the 1x2 bricks, I've got separate sandwich bags for various modified bricks (e.g. the ones with a technic axle hole, the ones with clips, printed bricks, etc) and then the others are broken down into sandwich bags by color. For those colors that I don't have a lot of, I try to combine very contrasting colors. For instance, I have my yellow and blue 1x2 bricks in one baggie.
Minifigs are a special case - do you keep them whole, or break them down. Personally I break all of mine down, then combine the torsos into baggies by theme or subtheme. Sometimes these get broken up in odd ways. For instance, one baggie for all of my Star Wars torsos that would work well in a castle setting, and one for all the other Star Wars torsos. Printed legs go in one bag, specialized legs in another (stubbies, springy legs from basketball figs, a couple of mermaid tails, printed slopes used as dresses, etc), and then a big bag of plain legs. Heads and accessories are fairly elaborately sorted into a few tackle boxes with lots of little compartments. But then there are some favorite figs that I always keep together (some from my MOC stories, plus the main characters from the SW OT, some of the comic book characters, etc.)
Then, of course, there's the kids' collection, that is (so far) separate from mine. Someday when they're bigger these will get merged, and then all hope of organization will be out the window until after they move off to college and one of their rooms becomes my LEGO sorting room.