With any sizeable project maintaining good documentation is a challenge - it's all to easy to skimp on documentation, or to start with good intentions but allow the documentation to get out of date.
The Drupal API project [1] allows you to set up a documentation website for your project like api.drupal.org [2] that covers all your code.
The way this works is that you add doc comments to your code, and the Drupal API module extracts these to create the searchable and cross-referenced documentation.
Because doc comments are in the code it is easier to remember to update the documentation when you make a change.
To install the API module:
Add the special doc comment @mainpage {title} somewhere appropriate, this can either be a dediciated documentation page (with nothing but doc comments) or a doc comment in a logical place within your code.
The key thing is that the {title} must be the same as the "long name" you chose earlier.
Links:
[1] http://drupal.org/project/api
[2] http://api.drupal.org