I ran into an issue the other day that was exacerbated by the fact that blog posts on the subject seemed to be out of date. Therefore, this is an attempt to bring a more up-to-date solution.
I've set up Nginx with Phusion Passenger to run my Rails apps in a development environment, as opposed to running rails server in a terminal every time. Setting the rails environment variable to "development" means that many code changes can be automatically integrated without a server restart, but every so often a full restart is required.