A Ruby on Rails Docker setup provides a local development environment with an isolated database, making it easier to manage dependencies, test, and deploy applications. This setup allows developers to create a new project with a clean environment using Docker Compose, which configures and connects applications and services such as proxies, databases, and volume mounts in a reusable way. The setup includes a Ruby Docker image that builds the necessary layers for the application, and a Rails Docker Compose file that glues all the services together for a functional Ruby on Rails application on Docker. The Makefile is used to create an accessible interface for developers to easily interact with this local development environment for Ruby. This setup can be used for different types of projects, including side-projects or frontend client-side projects, and provides several benefits such as easy configuration, splitting logic from the environment, sharing the environment without sensitive code, and a clean host machine.