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Following is a step by step guide to configure an application for dynamic subdomains. We are trying to set up wildcard subdomain feature similar to the one done by blogspot.com and wordpress.com.

Step 1
In advanced DNS settings of your domain, add an A record as follows
*.domain.com IN A ***.***.***.*** (server IP address)

Step 2
Modify http.conf to set up a serveralias *.domain.com for http://www.domain.com/.
Make sure you have access, or ask your service provider to do this.

Step 3
Add a wildcard entry for your domain in the Zone file for http://www.domain.com/, so that nonexistant subdomains are resolved to same public_html folder.

Now to check this, keep an index.html file in the public_html folder.
Try browsing http://www.domain.com/ and http://anything.domain.com/ . Both should resolve to the same index.html file. If this succeeds, your dynamic subdomains are set up.

To catch the subdomain in RubyOnRails modify application.rb as follows,

class ApplicationController < ActionController::Base
before_filter :get_subdomain
#
# Other content goes here
#
private
def get_subdomain
@subdomain = request.subdomain.first
@subdomain = 'www' if @subdomain.nil?
end
end

Now you have a subdomain catched by your application controller which can be used in all controllers.
For example, MyController makes use of @subdomain and decides what action to take. (it is a simple redirect action in this case)

class MyController < ApplicationController
def index
if     subdomain == 'anup'
redirect_to_url 'http://anup.info'
else if    subdomain == 'planet'
redirect_to_url 'http://planetrubyonrails.com'
else
redirect_to_url 'http://yourdefaulturl.com'
end
end
end