We recommend Ruby 1.9.3 for use with Rails. Rails 3.2 is the last one that supports Ruby 1.8. Ruby 1.8.6 and earlier are not supported, neither is version 1.9.1.
With RubyGems loaded, you can install all of Rails and its dependencies through the command line:
gem install rails
New versions of Rails can be installed the same way.
Make your application
Create your application skeleton and start the server:
rails new path/to/your/new/application
You're running Ruby on Rails! Follow the instructions on http://localhost:3000.
TextMate on OS X has long been the favored Rails editor, but the classic editors are still going strong. See VIM for Rails and Emacs for Rails. For a full-on IDE, check out RadRails, RubyMine, 3rd Rail, or Netbeans for Ruby.