Anything broken or with missing parts can go. Stuff that they have grown out of. I cull the random McDonalds etc junk fairly regularly too. Other than this, sort into categories and then keep the best/most played with out of each category and get rid of the rest.
If you find a really small category - we have 2 random pieces of duplo, and at one point we had about 5 farm animals and 2 pieces of fence - decide whether to keep or pass on, but if you decide to keep it, invest in something else/more of that item so that it can actually be used. 2 pieces of Duplo are useless and we decided not to bother buying Duplo as we have both mega bloks and lego - so I passed the Duplo bits onto a friend that has Duplo. For the farm animals I bought more farm animals as a birthday present.
If the children are below about 5 you can generally just chuck stuff without them even noticing. If they are older than this they maye have emotional attachments to things that you wouldn't realise, so it's worth either involving them in the process or keeping things in a kind of "purgatory" before they are gone for good so when they wail "Where is my Jasmine figurine?!" you know to check the random McDonald's toy bag.
If you want to keep a lot but you find your DC are overwhelmed by choice try rotating toys - get some big tubs to put in loft/your bedroom/on top of wardrobes (whatever out of the way storage you have) and put away half or 2/3 of their stuff, then swap it out whenever you remember or when they seem to be getting bored of the toys that they have.
Periodically if I notice the same thing getting in the way/parts coming off and becoming an annoyance/just generally something being an issue, that particular thing is getting eyed up to be moved on as well.