It depends. I use small plastic boxes for sets. DS1 has a box4blox in his room for random pieces. DS2 and DS3 both have lay n go mats for random pieces. But they keep legos in their rooms...mostly because they were so into them when DS3 was too young to have them out around him. Now that he's almost 4, I might do something different but we're good.
These are the different things we use...
http://www.layngo.com/
http://box4blox.com/
http://www.target.com/p/ecom-sterili...prodSlot=_1_10
http://www.landofnod.com/bins-and-ba...box-5.25/f8573
Mama to my boys (04,07,11)
Instructions go into a bin, once sets are disassembled the pieces are put into bins with all other pieces. Minifigures go in their own bin.
We keep ours in a Swoop bag. It works well, but my kids are not huge Lego users. My 5yo will play for a few minutes every day. There's not mass chaos every time, so it's easy to just toss in any pieces that got out and close up the bag. I'm thinking about a bin, though. I like things that stack! The Swoop just sits on our floor in the office.