According to the Salvation Army website they sell the clothing in their thrift store.
"Why Thrift Stores?
The Salvation Army Thrift Stores provide a source of funding for the Salvation Army through the sale of donated items. Donated items are either dropped off at a collection point or picked up where pick-up service is available. Items are sorted and processed and sold in the Thrift Store and/or provided to needy persons through a volunteer system provided by the Family Services Department of the Salvation Army."
Source(s):
http://www.thriftstore.ca/whatwedo

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The clothes that are donated are usually taken to retail stores run by Goodwill and the salvation army. many of the stores are run by people who these organizations are assisting with helping them get their lives back together after addiction, homelessness, and other bad fortune. the clothes are sold and the "profits" are used to operate the business.
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A huge amount of the clothing donated to these organizations is sent abroad to countries in Africa, where they are sold and resold. A lot of individuals along the way make a lot of money off these items, so it sort of depends on your definition of "charity". But for the most part, most of the clothing you donate may very well be sold in bulk bales - at pennies on the dollar - to middlemen, who will ship it overseas and will get a large profit by reselling the clothing to other merchants.

Here's a fascinating article following a shirt donated in England all the way to where it is sold in Zambia. http://www.guardian.co.uk/society/2004/feb/25/voluntarysector.charitymanagement Here's a similar article about clothing collect in Anchorage and what happens to it: http://www.adn.com/anchorage/story/614624.html

If you've got higher end clothing and would like to make sure that the charity of your choice gets the proceeds from selling the item, you should look into bringing your clothing to a consignment store and then you can donate any money you make directly to the charity of your choice.
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Much of it goes to help people-either throguh reselling and using the money to help the poor-or providing clothes to the poor/vitims of disater directly..

unlike otehr clothing bin charities--that only pay the organization(such as DARE) a fee to use their name--and teh organization doesn't actually benefit from the clothing at all..
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