Within the master photo file (My Pictures or wherever you keep them, ours are on an external hard drive), create a folder labeled for each year. Within that folder, I create folders for each month...but instead of naming them January, February, etc. I date them with the last day of the month - for example, 1-31-2011. This way, they always remain in correct numerical order, whereas if you spell out the month names they will sometimes alphabetize.
Here's a screenshot to show you what I mean:
How do you keep your digital photos organized? Any tips to share?