More information on this:
From the dreamhost Ruby on Rails wiki (http://wiki.dreamhost.com/Ruby_on_Rails#Switching_to_FCGI_with_Dreamhost), Fast CGI should set RAILS_ENV to production. You should only have to overwrite RAILS_ENV if you want to set development. HOWEVER, this is not currently happening, so you need to put the following in config/environment.rb:
ENV[‘RAILS_ENV’] ||= ‘production’
Hopefully, dreamhost will correct this issue. Running in development by default is not what anyone wants for a live system.
And to answer my own question about not knowing when fast cgi reloads: simply touch public/dispatch.fcgi and the next time your rails app is accessed your app will be reloaded. In my rails log directory, fastcgi.crash.log keeps track of when fast cgi is started and stopped.