That's a good question, and I always wonder how others do it as well.
I have Family Tree Maker which I add information to often, and I save my documents to a memory stick every now and than.
But I always copy each document I find, than place that doc in a plastic sheet protector and into a 3 ring binder.
I now have two 3 inch binders, one for my dads side one for mom's side.
I organize the book by family members, and have dividers to separate each family.
Example: My fathers father's tab (my grandfather) looks like this
I write the name on the tab, Giovanni Catapano
and in that file I have my grandfather, grandmother and all their children. I can continue and do their grandchildren as well, filed under each person, it's pretty basic filing.
The woman are tabbed as like this: my aunt, Antoinette Catapano Barbara
so her maiden name and married name show. I place the latest census first, and it identify her husband and kids at that time
I also like to add a note sheet to any pages I want, I like to explain who everyone is, just so my son may take interest some time and learn about his family.
So to sum it up, I have two 3 inch binders One for mom, dad.. full of documents kept in plastic sheet protectors, and separated by dividers. It's also nice if I just want to take one side of the family out lol like to the library, or to someones house to work on. All in one book.