Defo start out with random bits - it's best that way IMO. You can still buy Creative/Classic sets, which are boxes of bricks with a few special bits like eyes/wheels/flowers etc. The box doubles up as a storage vessel, but won't last long once you start adding new sets. Even a 3yo will enjoy sticking bricks randomly together, building basic shapes, a house etc.
If you haven't done this I would still just chuck it all in a box all mixed up. It would be too difficult to keep sets separate and I think that mixing it encourages them to be creative, which is the whole point of lego. It's quite soothing to dig through for the right part, and if you only have a few sets then it won't take too long. Shallow, wide boxes are good. Ikea have a good box called Pansartax which is wide and they stack. Two on top of each other fit perfectly in a Kallax shelf. That's what we have for lego right now. (I think we previously had the cheaper SAMLA but ran out of space).
Sorting by colour is a waste of time, because you can always substitute a piece of the same shape but a different colour, and because it gets mixed up so easily and the kids don't stick to it. It looks pretty for "Sort Your Life Out" type programmes, or maybe adult collectors who are meticulous, but it doesn't make sense for your average 5yo (IMO).
The only sorting system for Lego I've ever seen which made sense is the one they had on Dragon's Den years ago which was four stackable trays each with a different sized mesh as a base. Biggest holes at the top, smallest at the bottom. Put all lego in the top and sift it like someone panning for gold. All the tiny bits in theory trickle through to the bottom leaving the bigger parts in the upper layers. Brilliant! I wanted to recreate it but it was expensive to buy all the stuff I needed, so I never got around to it. (I bet you could 3D print one these days.) In the end, it doesn't matter, because physics will do the same thing in the box, so you can always find the tiny pieces lurking at the bottom and the bigger pieces rise to the top.
The sets once made up are not usually robust enough to actually stand up to being played with, especially the way that a 5yo would play with vehicles usually. The campervan one can cope with being opened and closed and the people put in and out carefully, that's about it really. They are more designed for either the fun of building it, to be displayed, or to set up little scenes.
We have a ring binder, a big fat one with 4 rings, with poly pockets divided into half and quarter A4 (supposed to be for photos, I think?) and I keep the instructions in there. They were supposed to be sorted by type but it doesn't stay in order so we just flip through and look for what we want to build. Those old CD wallet things would work too, if you have one of those lying around and no idea what to do with it.
They tend to have suggested ages on the front which correlates to the complexity of the build, so if you're beginners then I'd aim for a year or so younger. Lego Juniors are extremely simple. Lego City tend to be good for 5yo and lots of themes which will appeal to them. Lego Creator sets are great, because you get 3 models to build out of the same set of bricks. These are often quite easy to build too. Be careful with some of the City ones as they can be more complicated, we have the car wash and a recycling truck and those have some fiddly bits.
If your pieces are all mixed up, then what I tended to do when helping DC around this age was look to the next page of instructions and I'd try and find the right pieces, then they would put them together with help if needed. Once you are a bit more experienced with it, show them the part of the page where it tells you which bits to look for, then look through the box together (or tip it out and make a pile each).
We normally break up the models at the end of the day but if something is half-built or DC want to keep it to look at then we will keep a couple up on display at a time. As you have a little one as well I would recommend a safe/high place for these.
You normally get spares of each of the tiniest, most losable pieces but still do try to round them up at the end of the day as they are very hooverable.
Sorry that was a bit of a stream of consciousness 