What are environment files in Rails?

Rails has three default environments: development (local coding — verbose errors, hot reloading, debug logging), test (running tests — isolated database, faster), and production (live server — optimized performance, asset compilation, less verbose logging). Configuration per environment lives in config/environments/development.rb, etc. Sensitive environment-specific values (API keys, database passwords) are stored in .env files (via the dotenv-rails gem) or Rails credentials (config/credentials.yml.enc) and accessed via Rails.application.credentials.secret_key.