A NameError in Ruby, specifically the Uninitialized Constant error, occurs when a referenced variable or constant isn't defined, often due to missing `require` statements, incorrect capitalization, or typographical errors. The error can arise when a class or module is referred to but not found, as demonstrated with a class named Dummy in a Rails project, where the error manifested because the class file wasn't loaded into the Rails console. To resolve such errors, one can configure the `application.rb` file to include autoload paths, ensuring all necessary files are loaded when the Rails server or console starts. Additionally, tools like Rollbar can help manage and monitor such errors in real-time, providing developers with a more streamlined way to handle issues in Ruby on Rails applications.