Thanks to Chris’s suggestion, I got a better error message. Following that lead, I found that Ruby’s code navigation seems to require a second language server: solargraph. I don’t know if you require both, but I can now navigate to Ruby definitions. I also have to autocomplete working.
Update [2022]
Coming back to this with VSCode 1.67.0 on Ubuntu 22.04, I no longer require solargraph. However, I did struggle a bit to figure out the exact steps to get it working:
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Open File: Preferences: Extensions.
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Search for Ruby by Peng Lv, and install it.
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Open File: Preferences: Settings.
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Click the button in the top right to open the JSON settings file:

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Add these settings:
{ "ruby.useLanguageServer": true, "ruby.intellisense": "rubyLocate" } -
Restart VSCode.