I back-up my photos to both an external hard-drive and Shutterfly (free, easy, permanent). I accidentally lost 4 years of pictures off my hard-drive but am so thankful they are backed up still on Shutterfly*. I definitely recommend uploading them online somewhere versus just keeping them on your computer or hard-drive.
I organize my folders by year. Under each year, I create individual folders for each "event" that I take photos of. I always start with the year, month, then day and label what the activity was (2011-01-06 Sledding). This keeps them all organized by date automatically AND I can easily see what is in the folder. For all of the random, misc shots that weren't really part of an event, I put them in a folder for each month called something like: 2011-01-01 Jan Misc Pictures. That way I don't have to create a folder for those little random pictures but they're still organized by month so when I create my photobooks they're still essentially in order of time. I'll be doing another post on photobooks for those of you who may have lots of photos but don't have time for scrapbooking and don't know what to practically do with your pictures.
One recommendation we received from our insurance agent is to take photos of everything in your house. Just go from room to room, opening cupboards and drawers and taking pictures of their contents as well as decorations and each room in general. Then, upload them online to a site that will store them for you. If your house ever burns to the ground, the only way you can get reimbursed for your possessions is to make lists of what you lost. It's much easier making a list if you have photos to jog your memory.
*I personally use Shutterfly but there are many other sites out there that also can help you organize your photos and at which you can create photobooks and order photos.
Do you have your photos organized? What system do you use? Does it work for you?