An example of an interface divided into containers, from Aardwolf MUD
Containers are 'windows' in the user's browser for things like player-to-player chat, or pictures of who is nearby, or the section of a game map that the player can see.
The example above isn't RailsGame, but it illustrates the point nicely. There are five separate sub-windows in the interface above. One is a "game output" window (left), another is for player chat (top), two are maps (lower right) and one is the player's condition (center). This would correspond to five containers, in RailsGame parlance.
Where possible, it's better to use static containers. A static container is part of the HTML that Rails serves up to the client. To display into it, RailsGame sends simple JavaScript calls to change the contents, whether that's adding output to a div area (rectangular region of a page), or updating a map.
Alternately, RailsGame can create a dynamic container. It isn't part of the HTML that Rails sends to the client. Instead, your game server will send JavaScript code to create it after the browser has already connected. That's important if you want to have player preferences about what parts are visible (see the diagram above -- what if the player didn't want the chat window displayed, for instance?), or if the container might vary significantly from player to player, or only exist sometimes (a pop-up form to fill out, say).
A dynamic container must have its JavaScript sent from your game server rather than the Rails server, and the request can't be cached. Where possible, use static containers instead. But in some cases, only a dynamic container will allow the effect you want.
Note that for simple effects, you can often use a static container and HTML or CSS even when it sounds like an obvious case for a dynamic container. For instance, a pop-up that will always look the same could be loaded invisible (with style "display:none") and only made visible when you use it, for instance. Differences in location and presence of frames or divs in your page could be set by different locations, sizes and display settings in a dynamic CSS stylesheet with the same HTML. Consider whether you need a dynamic container, or just a static container with a few flourishes that Rails can already provide.