I sort by color, type, and size. I have a huge basket for scraps, shelves for fat quarters and yardage, and I beg, borrow and steal the cardboard bolts for yardage over 3 yards, which I store under my sewing/cutting table.
When I group my fabrics together as to color, I generally will separate out all the flannels and homespuns as well as specific holiday fabrics, and they all get their own stack. I also have a stack of fabrics that don't really fit any category, such as prints that have a multitude of colors.
I agree with Loretta about doing it to fit your space. Some people really like to use the heavy plastic containers, and some don't. I prefer to have mine out where I can flip through them easily. I'm lazy that way. :P