The difference is between 2 environments. In Rails, there are several environment. Each has his own database configuration and Rails options.
You can use the Rails.env variable to made some different change with particular environment.
By default, the development environment is without all cache and activate the auto-reloading. The production environment is with all cache.
But if you want you can make a production environment like development or development environment like production.
You can add some new specific environment too.
Creating new Environment:
Assuming you want create the hudson environment.
Create a new environment file in config/environments/hudson.rb.
You can start by cloning an existing one, for instance config/environments/test.rb.
Add a new configuration block in config/database.yml for your environment.
Now you can start the server
ruby script/server -e hudson
Run the console
ruby script/server hudson
And so on.