In Rails's directory structure as far back as I can recall, there's always been a lib folder. This folder is for files that don't belong in the app folder (not controllers, helpers, mailers, models, observers or views), such as modules that are included into other areas of the application. The lib directory is for our code that won't 'fit' in the app directory.
You can also see this directory in plugins and engines, as well as in all cool Ruby gems.
In Rails 3, this directory was removed from the autoload path which has lead to some frustration amongst people when their files aren't being automatically loaded. We'll cover what autoloading does in the second part of this rather short and informative guide.
We can place any Ruby file in the lib directory and require it anywhere in our application, because Rails adds this directory to the $LOAD_PATH variable. Let's say we had a file in our application at lib/wildcard_search.rb which defined some additional functionality to any model it was included in. Note that this file isn't a model itself, it simply provides extensions to models. Therefore it's best to place it in the lib directory. Inside this file, the WildcardSearch module is defined.
To require this file, we can do this in our application:
require 'wildcard_search'
Then we've got access to the WildcardSearch module where and when we need it.
Now with autoloading in Rails, we don't need to even require these files to access the constants defined in them. There's a configuration option called load_paths for Rails 3 applications which lives in config/application.rb, but is commented out by default. We can uncomment this setting and configure it to specify the lib directory:
config.autoload_paths += %W(#{config.root}/lib)
With this setting specified, we don't need to require the files in this directory any more, but rather we can simply reference the constants they define and then Rails will require them if it can't find the constants. We can even specify more than one additional path to autoload_paths if we choose. ZOMG!
So how does this work? Well, Rails will take the constant name such as WildcardSearch, convert it to a string, then call underscore before searching for this file in all the autoload_paths that are specified. If it finds it, then it will then call require on this file and thereby define the constant and if it can't find this file then it will raise an uninitialized constant error. If the file is named incorrectly (such as WildCardSearch.rb instead), then Rails will be unable to find the file it's looking for, which will cause the constant to not be loaded.
Because this file is called wildcard_search.rb, it will be required in the search for the WildcardSearch constant. If this file doesn't define this constant then you will see this kind of error:
Expected lib/wildcard_search.rb to define WildcardSearch
In which case this must be corrected so that Rails's autoloading is happy.
If you want to see more information, check out the ActiveSupport::Autoload module which provides this functionality in Rails.