I sort by color, for basic cottons. However, I also sort out certain other things. For example, all Christmas, all cats, holidays, all fabrics not cotton, fabrics bought for a specific project, pre cut pieces, small scraps, larger scraps, etc.
We used to be taught in college that if you had more than 5 of anything it needed its own file folder. I sort of think that way and keep like kinds of fabric together, sorted by color, etc.