Great questions! This is something we too struggle with, both personally and in parenting our daughter. My grandmother and mother are both hoarders, and my father and brother are on the opposite extreme (minimalists who don't keep much at all). I'm trying to find a happy middle ground in which I can keep the truly sentimental items, while not going overboard and collecting/keeping too much. Easier said than done, but I realize I have to set the best example for our daughter, who (like Kat's sons) is also unfortunately already on the hoarder path.

One thing we recently tried that worked well when her closet and clothing bins were overflowing was to take all of the clothes out of her room and put them in the living room in piles. We then went through them in batches. In reviewing each and every pair of pants (having her try on each of them), we immediately eliminated anything that didn't fit or had holes/stains. We put everything that did still fit into piles: jeans, slacks (casual vs. dressy), tights. We allowed her to keep a certain # in each category, and helped her make difficult decisions (for instance, pointing out that she rarely wore those pants, or encouraging her to give to her low-income cousins in Indonesia one of the 5 identical pairs of jeans she had). Ultimately, within the quantitative limits, the decision of what stayed and what went was hers, and that helped tremendously in her being able to part with the items, vs. me sneaking in and discarding items on her behalf (which nearly always led to "what happened to X item?" and then tears). After the paring down of pants, we moved on to short-sleeve shirts, long-sleeve shirts, dresses, and shorts. We had 3 large bags for donation/discard after that session, and we were all happy with the results (especially her because her closet was then neatly organized and it was easier for her to get dressed for school). We also instituted a rule that if she got a new pair of pants (or shirt, etc.), she had to discard an old one (to avoid the huge project of the all-clothing clean-out).

After clothing, we also applied this methodology to the overflowing bins of stuffed animals (only a certain # could be kept in each category: stuffed dogs vs. cats vs. bears vs. jungle animals vs. snow animals, etc.). Next up: organizing and clearing out art projects and old school papers; and getting the dolls slimmed down as well.

I'm looking forward to reading what other parents are doing too. Thanks for asking!

Dr. Susan's answer above is right on target.  Your child should decide for themself when it is OK to let go of something.  Once I had problems turning off the TV at night.  My daughter would throw a fit when I turned the TV off, but would go to bed peacefully if I let her turn the TV off.  Consequently, we encourage and praise her for giving old toys, clothes, etc to smaller children after she has outgrown its use.  We also encourage outdoor activities that remove her focus from the items that she collects in her room.  The less time they spend looking at the items they collect, the easier it is to let go.