when is a pessimistic lock released in rails?

Yes, the lock automatically released at the end of the transaction because this kind of lock is applicable to transactions only. It does not make sense to lock the record this way (pessimistic lock) outside the transaction.

Pessimistic locks are enforced on DB level.

Below is a description with examples for mysql: http://dev.mysql.com/doc/refman/5.0/en/innodb-lock-modes.html

Locking is not a function of rails, it is just adding the lock statement to the query, which will vary depending on the database that you are using. Pessimistic Locking takes a "pessimistic" view in thinking that every query is subject to corruption. So it is going to lock selected rows until you are finished with the transaction. so Lock > query > unlock. While these are fairly consistent database to database, it might be good to read up on the database documentation that you using for any database-specific things you should know.

Here is a good thread on optimistic vs. pessimistic locking that explains it better than I can. Optimistic vs. Pessimistic locking