#make directory

Use 

rails new project_name

You don't need to make a new directory/folder beforehand because this command will create one with the same name as your project. But if you do have a folder already that you want to use, then just make your project the same name and rails will recognize it exists already.

Btw, you can make a new directory/folder with

mkdir directory_name

Or if you need to specify a place within other folders: