Here are the steps that I followed:
1: Using Homebrew, install and build PostgreSQL
Homebrew will give you commands to create a Launch Agent that starts the server on a reboot
$ brew install postgresql
$ cp /usr/local/Cellar/postgresql/9.0.3/org.postgresql.postgres.plist ~/Library/LaunchAgents
$ launchctl load -w ~/Library/LaunchAgents/org.postgresql.postgres.plist
2: Setup PostgreSQL
You should look into setting administration user - I skipped that for my purposes
$ initdb /usr/local/var/postgres
The files belonging to this database system will be owned by user "jones".
This user must also own the server process.
3: Create a specific database and verify that it is running
$ createdb mydb
$ psql mydb
mydb-# select version();
4: Install the PostgreSQL ruby gem
You'll see different names for this gem - just use 'pg'. Using the ARCHFLAGS env variable is important. I did not need to specify the explicit path to the Homebrew installation of the PostgreSQL software.
$ env ARCHFLAGS="-arch x86_64" gem install pg