If it's too small, it doesn't belong there. Make an executive decision on whether to save outgrown apparel for a younger sibling, donate it, pass it along to a friend or family member, or just throw it out. If it's ripped or torn and can be salvaged, take it to a tailor or DIY. If it's something that you bought ahead of time for your child to grow into, make sure that it's somewhere that you'll remember it!
As for everything else, hang as much as you can in the closet, as it's a lot easier to see there. Keep dresser drawers as neat and tidy as possible, with articles of clothing neatly folded and organized by category.