With the advent of digital camera comes and onslaught of digital photos. Many people have a hard time organizing their digital photos. I'm going to tell you my system which seems to be working quite well.
Microsoft has helped out quite a bit by having the My Documents\my pictures folder created automatically. By building on this base, you can have well organized photos.
Start by creating a new folder and rename it to the year. This year you would create a folder in your my pictures folder called 2005.
The second step is to create a new folder every time you download your photos. Rename this folder with the date and something to describe the photos. For example if you took photos at a picnic on February 24, 2005 you could name the folder "02/24/2005 picnic". Doing this makes the computer sort the folders in date order, month/day/year and allows you to see what is in the folder by a glancing at the name of the folder. If you have more than one picnic a month you might want to add picnic and the name of the place where you had the picnic.
This system has been working for me for the last four years and for my parents for the last 6 years.
-Gary Milner, photo organizer