It has been proven in studies, that the more toys a child has, the less of an attention span they get, because they are always buzzing from one toy to the next without the need to use imaginative play with one item for extended periods of time b/c they are too overwhelmed with all the selection.
Our children have understood donating toys since they were about 3. We would go through the boxes together, pick out ones they no longer play with and put them in a box to get rid of. Very rarely did they beg for a toy, and when they did we let them keep it until it made the next round to donate. If it's a small happy meal toy or something they hardly play with, it goes in the donation (or sell) box.
Some toys we rotate, but most we totally get rid of. Really, my kids prefer leggos, blocks and their cars over most toys.
I once put a box of really nice and clean toys on craiglist and sold it for $40. Then, I had a talk with my family about my children not needing to receive so many toys. They would go overboard with toy gifts and it has greatly improved now.