I have a filebox. Each kid has a section and each section has a folder for each subject we're required to log. As the year goes by, I toss stuff in the folder I might want to keep-- pretests and posttests, worksheets, copies or pictures of projects, pamphlets from places we visit, concert programs, etc. Then at the end of the year, I divide a binder in to the subjects.
In the front of the portfolio I always put:
a copy of the PA homeschool law
a copy of my affadavit and objectives
my attendance sheet with my 180 days marked off
my child's book log
a copy of their standardized test results if required
Then in each subject section, I type out an overview of what we did, main lesson blocks, and include my list of books used. I don't include tons of samples of works-- usually I just represent the beginning, middle, and end of the year. But I tend to be a minimalist and only do the exact letter of the law. Other homeschoolers feel the more they give the state, the better.
I've done this for 3 years now in PA and haven't had a problem yet.