Although you can still use FastCGI, DreamHost now recommends using Passenger to deploy and host Ruby on Rails applications on DreamHost servers.

Enabling Passenger:
To enable Passenger, edit any of your fully hosted domains or add a new domain from the Manage Domains area of the web panel. Check the “Ruby on Rails Passenger (mod_rails)?” option, and save.

Once Passenger has been enabled for your domain, set the web directory to the “public” directory of the RoR app.

Notes: Only enable this option if you are running a Ruby on Rails app as the main application for a specific domain or sub-domain.

In other words: you want to access your RoR application via myapp.mydomainatDH.com or mydomainatDH.com, not as: mydomainatDH.com/path-to-myapp.

For more info see: the wiki entry on Passenger