I have a similar problem, esp that we live in a townhouse and the rooms are not that large.
Every month, my husband and I sit down with her toybox and sort through what she does and does not play with anymore.
Regarding the toys she outgrew: we save or donate it. If it's a really good quality toy, and in great condition, then we save it for the next child that we plan to have in the next 1-2 yrs. If it's old, or not very valuable or cheap, we donate it.
We would value her input of which to keep or throw, but she's 2 and doesn't understand. Since your daughter is almost 3, she may understand and help out. If she wants to keep everything, then do this after she goes to bed.
To organize her toys, we keep it in a toy organizer, gotten from Target. It has 3 shelves, and has compartments where u can throw the toys in. It's a great space-saver and organizer. Not only that, it allows the child(s) to see EVERY toy and pick and choose. As opposed to a toybox, where toys fall to the bottom and are forgotten.
As for the donated toys, I just drop them off at the nearby salvation army depot and get a ticket to get tax deduction. Easy and fast.
I've done Freecycle for household furniture, but you have to deal with tons of emails clogging up your inbox from other members seeking to donate or take items. Not only that, you have to arrange a time for the member to pick up the toys/donated items. As a full time married working mama I find that just dumping them at the local depot saves a lot of time and hassle.
Good luck to you and have a happy holiday!