Yes, SSO using OAuth is a viable solution, but it’s not the simplest one. When building anything new, OAuth 2.0 is the way to go. The OAuth standards cover a lot of ground.
The primary advantage of OAuth is that it allows users to give 3rd party apps access to their account without disclosing their password to the 3rd party. If you are not seriously providing such interoperability, then OAuth is probably overkill.
Given the complexity, I offer a different pair of solutions:
For Single Sign On
The trick is to share the session ID cookie between hosts within your domain & to use a shared session store (like ActiveRecordStore or a cache-based store.)
Every Rails app has a “secret” that is used to sign cookies. In newer Rails apps this is located in /config/initializers/secret_token.rb. Set the same secret token in each application.
Then, configure the session to allow access from all subdomains:
AppName::Application.config.session_store :active_record_store, :key => '_app_name_session', :domain => :all
For Internal API calls
Use a good shared secret to authenticate over HTTPS connections. Pass the secret in the “Authorization” header value.
You can use the shared secret easily with other architectures (like node.js). Just make sure you always use HTTPS, otherwise the shared secret could be sniffed on the network.