We have one of those nine cube storage shelve things that you can put the canvas bins into...I love it. It very neatly houses smaller toys into sets. I am going to buy a second one to organize all of our school things (we homeschool.)
It wasn't so bad with one child...two made it terrible. As the younger one collects things (much less than her older sister, of course) I have run out of room for toys. So now, large sets (think tote fulls...one of Barbies, one of a train set, one of baby dolls, one of dinosaurs, etc) are in the basement. When she wants to play with a set, I haul it up and back down when she's done...extra exercise, yay! :)
Another lifesaver for me has been shoe boxes under their beds. There are all sorts of little sets that don't get played with often stashed away, but still there because they do still get occasional use.
I have a garage sale every year, and get rid of literally a mountain of stuff, including toys. I used to think I wanted to save it all for the next one...until I HAD the next one...and realized I don't have the space to do that, nor do I really want to. As holidays and birthdays pass she is accumulating her own things, and doesn't need EVERYthing her sister had. Of course, I saved the staples...blocks, the Little People barn, etc...but I've gotten rid of all the Polly Pockets that no longer were being used and a ton of other toys.
My best tip is organized containment. I got rid of the toy box before my first one was two, because nothing in it ever got played with. If it's not easily accessible, it seems like they will find something else. That's one reason why I love the canvas drawers in the cubby thing...I can take one out and they'll play with it. For example, if I take out the two cubbies that have all the farm set stuff in them, they'll play with it for two hours. If that were all thrown in a toy box, they'd never play with it. :)