In development mode Rails will reload code on each request to pick up on changes you have made to your application. That way you can interact with the application to help verify that your code is working properly.
As of Rails 3.2 development mode watches for file changes and attempts to only reload those files, but it's still a significant performance issue.
By default all Rails applications start in development mode, so one gotcha of benchmarking Rails is that some people will forget to set the mode correctly. That said, from the setup code[1] (line 14) it looks like they were running passenger in production mode. The max pool size seems excessive, especially when running on large ec2 instances, but I'm not fully convinced that it's out of line.
In development mode, it's nice to be able edit ruby code, then hit reload in the browser to see it in action without restarting the whole app. Sure there are other ways to accomplish this, but reloading code is typically how it's done in Ruby.
The Rails framework is written to reload (reevaluate) most application code between requests in development mode, so that changes during active dev are reflected. This is not the (default) behavior in production.
