I choose the items that I feel are the most important to my daughter, will have the most meaning, or have the best memories associated with them, and I put those into a folder in my utility cabinet (in my kitchen). The others go right into the recycling. My girls know that I do not keep all of their work, but they also know that I do keep enough of it for them to feel comfortable when they see things being thrown out.
I periodically go through the folder throughout the school year and continue to thin it out. At the end of the school year I do a finally review and then put it into my file cabinet in my craft area. These items are eventually compiled into a scrapbook for my girls.