add_index(table_name, column_name, options = {}) Ver: 1.1.4
From: ActiveRecord::ConnectionAdapters::SchemaStatements Version 1.1.4
Comments

Adds a new index to the table. column_name can be a single Symbol, or an Array of Symbols.

The index will be named after the table and the first column names, unless you pass +:name+ as an option.

When creating an index on multiple columns, the first column is used as a name for the index. For example, when you specify an index on two columns [+:first+, +:last+], the DBMS creates an index for both columns as well as an index for the first colum +:first+. Using just the first name for this index makes sense, because you will never have to create a singular index with this name.

Examples
Creating a simple index
 add_index(:suppliers, :name)

generates 

 CREATE INDEX suppliers_name_index ON suppliers(name)
Creating a unique index
 add_index(:accounts, [:branch_id, :party_id], :unique => true)

generates 

 CREATE UNIQUE INDEX accounts_branch_id_index ON accounts(branch_id, party_id)
Creating a named index
 add_index(:accounts, [:branch_id, :party_id], :unique => true, :name => 'by_branch_party')

generates 

 CREATE UNIQUE INDEX by_branch_party ON accounts(branch_id, party_id)

Sourcecode
# File src/rails-1.1.4/activerecord/lib/active_record/connection_adapters/abstract/schema_statements.rb, line 186
      def add_index(table_name, column_name, options = {})
        column_names = Array(column_name)
        index_name   = index_name(table_name, :column => column_names.first)

        if Hash === options # legacy support, since this param was a string
          index_type = options[:unique] ? "UNIQUE" : ""
          index_name = options[:name] || index_name
        else
          index_type = options
        end
        quoted_column_names = column_names.map { |e| quote_column_name(e) }.join(", ")
        execute "CREATE #{index_type} INDEX #{quote_column_name(index_name)} ON #{table_name} (#{quoted_column_names})"
      end
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