Debian is the oldest of the Linux distributions and has a venerable history. 

But what attracts me to Ubuntu are the LTS distributions (or Long Term Support). You get a massive 5 years of support for that distribution. So, Ubuntu 12.04 LTS will be backed till 2017! Debian will support the previous release for 1 year.

Also, Ubuntu has the backing of a commercial organisation.

See also:

http://askubuntu.com/questions/15314/debian-stable-vs-ubuntu-lts-for-server

and

http://serverfault.com/questions/389199/is-it-debian-really-more-stable-for-servers-than-ubuntu-lts

and a specific guide to setting up a Rails server on Ubuntu 12.04 here:

http://blog.lunarlogicpolska.com/2013/setup-fresh-ubuntu-server-for-ruby-on-rails/

For the process of provisioning your server, see:

https://library.linode.com/getting-started

and, for Phusion Passenger, this is a useful read:

https://developer.apple.com/library/mac/#featuredarticles/PhusionRails/_index.html

If you’re on a Mac then use PassengerPane for local Rails deployments (helps avoid cluttered /etc/hosts): 

http://www.fngtps.com/passenger-preference-pane

Hint – just use:

$ gem install passenger

$ passenger-install-apache2-module