I personally would use the Fantastic Plugin call "Devise":http://github.com/plataformatec/devise it has built in forgotten password support, activation codes and many more great modules too sort authentication out.
Even if you didn't want to use the whole plugin, you still could analise the methods and code to construct your own.
I'm beginner for RoR. Currently working in Rails3 version..i didn't get idea about Creating "Forgot Password" module. I give the Details of my requirement below..
Send email asking them to follow link to change password. User follows link and confirms that they want to reset their password. User enters new password. Update db.
Post your view to clear my doubts