My system for the last 5 years has been to keep boxes (one for each DD) in the closet of the spare bedroom, I slowly add clothes to it as they get out grown. When box is full it gets taped up and taken out to the garage. When we moved last spring I realized just how many of those little boxes I had and went through all of them and turned them into several large boxes.
It still has been bugging me so yesterday I went and bought rubbermate containers and did a major purge.
My DD's are almost 4y apart and we will have more DC in future years but since my DC aren't close together I do really need a long term storage plan. I am now allowing 1 container per size, I have a NB-6m, 6-12m,12-24m, 2T, 3T, etc... Most of the stuff in the 2T and up containers are all the winter gear, shoes, etc... those do take up quite a bit of room. I was ruthless with weeding, any stained clothing went, if the jeans were well worn then they went. I added Halloween/Christmas dresses costumes I had to the different containers so I can find them when time comes. I'll end up with one misc baby stuff box, slings, dipes, burb rags, johnny jumper, etc...
I'm quite pleased with the results. I clearly labeled the containers, and will have DH put them on the shelves in the garage this weekend. My next goal will be to get two more containers, one I will keep in DD1's closet for easy use, the other will be kept in my closet for DD2's clothes. They will be marked already and I'll just add the clothes as they grow out of them, no more small boxes everywhere.