Rails uses the Bundler dependency manager. Rails 3 requires it, and you can choose to use it for Rails 2 and other ruby projects too. Even if you're still using Rails 2, you should use it to specify the gems that your project depends on so they can be installed in any environment where the project needs to be run. With bundler installed, all your partner needs to do is run:
bundle install
You will also be dependent on a database. For development, often sqlite is sufficient and ideal because it just uses an easily transportable file rather than having to create/dump/load and manage user access to something like mysql or postgres. You'll need to ensure that the database you're using is installed. Then, run:
rake db:create
rake db:migrate
Rather than just copying the project directory, it's essential that you use a version control system like Git so you can coordinate both your changes. It's the only reasonable way to track who changed what and not overwrite your partner's work.
Also, if you have more sophisticated needs for setting up a specific environment for your development app server, have a look at Vagrant: it can help you set up the recipe for building a virtual machine that your app runs in, complete with the installed database, version of ruby, gems, web server, and other utilities you may need.