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