I separate photos by year and then subject in "folders" in the Photos folder of my computer.
I backup the pictures using the online backup service Mozy.
And... if I remember... during the winter I copy all the pictures onto a DVD.
Also, we do a yearly family photo album with highlight pictures of the past year using Shutterfly's photo album service. Actual, physical photo book. This is huge - actual "hard copies" of pictures.
I always wonder if all the "digital" pictures will be able to be "seen" 50 years in the future. Who knows how the "storage media" will change? Heck, what about 10 years from now?