Ok i figured this out so i'll share it with everyone.
You need to create a subdomain in plesk by going to the control panel for your domain, click the domains link and then at the bottom you can add a new subdomain.
Creating a subdomain in plesk creates these folders
/var/www/vhosts/mysite.com/subdomains
/var/www/vhosts/mysite.com/<mysubdomain>
I just put my rails app files in /var/www/vhosts/mysite.com/<mysubdomain>
and then in /var/www/vhosts/mysite.com/subdomains/<mysubdomain>/conf
i just create another vhost.conf file for my subdomain.
After that stuff is setup, then I ran /usr/local/psa/admin/sbin/httpdmng --reconfigure-domain <mydomain>
and /usr/local/psa/admin/sbin/httpdmng --reconfigure-domain <subdomain.mydomain>