All that you need is a presentation folder with clear sleeves inside. I decorated the outside with scrapbooking paper.
Then I simply insert the "masterpieces" in each sleeve. My girls regularly ask to look through their books, to admire their work. I have found that this method allows us to enjoy their little creations in an easily accessible way.
The difficult part is paring it all down. This is by no means everything that they have ever created. I would have to devote an entire closet to storing scribbled pieces of paper if I kept everything. Generally, I keep "firsts" (first coloring page, first finger painting, first time to write their name, etc), and then anything else that I have an emotional attachment to. The rest gets displayed on the refrigerator for a few days, and then discreetly "thrown in the bin" (I've been caught in the act of throwing away a coloring page by my 5-year-old, and an emotional break-down ensued; I've learned to be more sly in my de-cluttering efforts).
So far, one binder has gotten me through ages 2-5, and from then on I plan on using one binder per grade.
Martha Stewart has a few more creative ideas for storing children's art:
Create an art collage, and frame it to hang in the child's room or even a family room.