Have you installed postgresql on your computer? Do that first, this gets skipped by a lot of tutorials, thinking that you have already done this step.
Have you tried rake db:create? Postgres is a little different than the usual rake db:migrate with the preinstalled SQLite3.
From the working directory, run:
rake db:create
rake db:migrate
See if that works, if not come back. There might be more steps to double check but this should work.
