Do you have mysql installed? What happens when you type: mysql -- version
i.e.: mysql --version mysql Ver 14.14 Distrib 5.1.31, for apple-darwin9.5.0 (powerpc) using readline 5.1
How about when you type: which mysql_config
i.e.: which mysql_config /usr/local/mysql/bin/mysql_config
Assuming you have mysql installed, you can install the mysql gem by typing:
gem install mysql --with-mysql-config=/usr/local/mysql/bin/ mysql_config
NOTE: substitute your path to mysql_config for mine here.
If you don't have mysql installed, go to http://www.mysql.com/ and follow the download instructions for your system.