The reason it’s not working is that DreamHost runs an old version of rails for which the generate command is different. I think you need to enter
script/generate generate scaffold User name:string email:string
Look at some references for Rails 2.x and you should find what you need.
I’ve just picked up Rails myself, but I’m disappointed to find out that DH doesn’t support rails 3 yet. It sounds like it’s possible to get it running with some work, but DH won’t be any help if something goes wrong. I’m looking into different hosting services. Good luck!