[John Pearl explains what you should include in your portfolio when hunting for a job in the game industry -- and what you should leave out.]
A long time colleague and friend of mine once put it best: "Never put anything in your portfolio that someone wouldn't pay you for." What that really means is that if it's not production-quality, don't put it in there. Along the way, you'll create work that act as great educational pieces for you personally, but in the end they don't make for a quality piece of work.
One important thing to keep in mind is having an ability to self-critique. If you're a talented environment artist, and you have some character work that's not that great, know when to cut it. If you're a good animator but your texturing skills aren't great, apply a grey material to your animations. Never put anything in your portfolio that puts the rest of your work in a bad light. Quality art is easily overshadowed by a couple bad pieces of work.
I've seen a number of pretty good 3d artists put really bad sketches or concepts in their portfolio. While this doesn't equal an instant rejection it can throw up a red flag to the reviewing party that you can't self-critique. This is an important trait to have as any kind of artist, especially a production artist.
Also, resist the urge to put EVERY piece of work you've ever done dating back to high school. When a position opens up, recruiters/reviewers are inundated with loads of submissions. You want to have a portfolio that can be quickly viewed and leaves a positive impression. People shouldn't have to click through a lot of your old work to hunt for a few gems.
It's important to find that balance of enough pieces to show your qualifications, but not too many that it ends up watering down your best work. In the past I've seen portfolios that started off really strong with a couple awesome pieces followed up by what can be assumed as earlier work that ended making it a middling portfolio.
It's important to show you have the ability to produce a variety of styles and subject matter. Obviously you can't tackle every genre out there, but for every hand painted fantasy texture you create, attempt a more realistic model the next time. As an animator, instead of always doing bipeds, try a quadriped with a tail. This isn't always realistic with school projects and deadlines, but it shows your depth and versatility as an artist.
Know what you're applying for
This may sound a little too obvious, but understand the position you're applying for. Don't apply for a character position if you have nothing to show but environmental art. Don't apply for a concept position if all you've ever done is animation. There is an off chance that your work in a different discipline will be so phenomenal that someone will be willing to take a chance on you for a position you're not qualified for, but it's highly unlikely.
There are a lot of portfolio hosting sites and programs out there currently. It doesn't matter what you use, only one thing matters in the end: Ease of viewing. Try to avoid overly complex and flashy website navigation. Also avoid requiring nonstandard plugins for viewing. If you're not a UI artist, don't make your portfolio your first foray into ui design. A simple and clean user interface on your portfolio lets the work speak for itself. There is nothing worse than your portfolio formatting getting in the way of your actual portfolio.
The presentation of your work speaks volumes about you as an artist. A good presentation shows a level of professionalism as well as pride in your work. If you're struggling for inspiration in this department have a look at some of the industry's heavy hitter's art books: Gears of War, God of War, Uncharted, Darksiders, etc. While you shouldn't steal from them directly, you should strive for that level of presentation. After all, the end goal here is that these artists will be your peers one day.