From the fine manual:
Tip: There is no performance difference among these three types, apart from increased storage space when using the blank-padded type, and a few extra CPU cycles to check the length when storing into a length-constrained column. While character(n) has performance advantages in some other database systems, there is no such advantage in PostgreSQL; in fact character(n) is usually the slowest of the three because of its additional storage costs. In most situations text or character varying should be used instead.
The three types they're talking about are char(n), varchar(n), and text. The tip is essentially saying that:
char(n) is the slowest due to blank padding and having to check the length constraint.
varchar(n) is usually in the middle because the length constraint needs to be checked.
text (AKA varchar with no n) is usually the fastest because there's no extra overhead.
Apart from the blank padding for char(n) and length checking for char(n) and varchar(n), they're all handled the same behind the scenes.
With ActiveRecord, t.string is a varchar and t.text is text. If you don't have any hard length constraints on your strings then just use t.text with PostgreSQL.