I'm not sure how system intensive Rails app is, but we ran a Facebook game with 20K daily active users on a $8/mo Dreamhost, back in 2008, with a fantasy league and all. My point is, unless you're doing something extraordinary, I doubt you would need more than a VPS.
As others have mentioned, multiple of those users can be hosted on an EC2 small instance. I suggest you start there. When moving to production, a bigger challenge is security, both in terms of intrusion and data protection. Making sure you have good rollback feature built into your rollout regime, because things can be fatal with real users. If you're using something that's basic like Heroku or EC2, you can scale way beyond that user strength with a click of a button. Scaling up would be least of your worries, at least for a few weeks.
If you're unsure, go with Heroku. Once you understand your system use, you can very easily switch to AWS and reduce costs.
As others have mentioned, multiple of those users can be hosted on an EC2 small instance. I suggest you start there. When moving to production, a bigger challenge is security, both in terms of intrusion and data protection. Making sure you have good rollback feature built into your rollout regime, because things can be fatal with real users. If you're using something that's basic like Heroku or EC2, you can scale way beyond that user strength with a click of a button. Scaling up would be least of your worries, at least for a few weeks.
If you're unsure, go with Heroku. Once you understand your system use, you can very easily switch to AWS and reduce costs.