by colors works best for me. Even with the fabrics that are multi-colored, I can always determine what color family. Then is just a different section for the Christmas prints and the children's themes.
Some people organize by size too. I don't. So I have little baggies of small fabrics in the same bins as the whole color family. So if I need pink, I go to the pink bin. Only need 6 pink 5" squares? No need to look elsewhere. I'll see what's in a small quantity in the bin before I cut something else.
So contrary to many quilters, I don't have a 'scrap bin.' Small pieces of fabric that are leftover get folded neatly and put in the right color bin or shelf.