K., I feel your pain :) I have a 6 1/2 year old boy, 4 year old b/g twins and a 15 month old girl, so I have tons of clothes and shoes etc to pass down. I just use big rubbermaid containers, toss the clothes in as they are out grown and then twice a year (spring and fall) I pull them all out and rummage through to get out the current size/season and pull out the things that wont fit or the size was missed due to the seasons. I always have ambitions of having a bit for each kid, so if my twin boy needs shorts, I can go to his bin and pull out the ones his brother has out grown to see if anything will fit, but my husband isnt patient enough during my seasonal transition mess to put up with it for another day or so for me to sort it that much :)
I have found a great way to get rid of the out grown clothes are to take them to a local second hand store. In Rio Rancho there is a great one called My Cedar Chest and she will give you a store credit, so you can bring in the things the twins have out grown and use the credit toward clothes for your older one. Or, freecycle.org, pass them along to someone who needs them :) Are you a member of the twins club? In albuquerque ours has two HUGE garage sales each year and that is a great way to unload all those clothes as well as acquire new ones.
I like to take our out grown plastic toys to the local WIC office or income support office, they often have play spaces for the kiddos and are always in need of plastic toys (have to be easily washable) or, again, freecycle.org is a great way to find families who could use them.
I am bad about passing down shoes. I know I personally wouldnt like to wear someone elses shoes because they get comfy to your feet, so they always seem to hit in the wrong spots when you wear someone elses, so I really dont hang on to shoes unless they are not too worn or are just super cute.
When I do laundry, about once every couple weeks I try to reorganize their dresser drawers and pull out the clothes that are no longer working for us, then get rid of them right awya instead of hanging on to them. I either stuff them in one of the bins, freecycle them. Our house is always a mess and never organized, but I figure in 20 years I can have the perfect house, right now it is all about the kids.