I have talked about the woodworking bench we made for the kids to use before, but wanted to show it in its full context. This area is the side of our house, just outside the garage. All of the saws, drills, and other tools are stored inside the garage.
Out here, we put an old shelving unit like this one (or here is a smaller one). It used to be in the garage and was no longer needed there. But moving it outside has been perfect to allow us a space to organize wood and scraps. Plywood is on top, 2x4s have a shelf, 1x4s have a space, and so on. Wood is just grouped by type. Miscellaneous materials like clear plastic are stored behind. Latches, clasps and wheels are stored int he garage.
There is a step ladder nearby for the kids to peruse and choose their wood that is too high. We also keep folding saw horses in the area. You see an old 5 gallon paint/ spackle bucket that the kids can use as a seat.
Having this organization system allows us to use the same materials over and over again for different projects, and to be able to tidy up the area without getting rid of all the fun.