Since I buy all cotton fabrics, it's easy for me to sort. I usually buy no less than 3 yds of any fabric. This is how I sort:
All fabrics above 1 yd is sorted buy color unless it was bought for a particular project, then it is put in a container for that project.
All fabrics 1/2 to 1 yd is put into one container since I don't have much more then that at any one time. Of course it is sorted in that container by color.
Anything below 1/2 yd is considered as scraps which I through into a contain until I get around to cutting them into squares or what ever pieces I can to make more quits from. This is where some of the quilts I made for the soldiers came from.
If by change there are still scraps left over after scrapping them out, I have another container to hold all the tiny pieces so that someday when I have time I can maybe learn to make the small doll quilts or use them in smaller projects. So far I am still building and have not used them.