I am following this tutorial on creating Rails Engines and I'm curious about whether or not I need to list all of my host's dependencies (I'm creating a Rails engine called admin inside a larger Rails application) inside the Engine's gem file (apparently the engine will be accessed via a gem). Why do I need to do this?
Also why does the engine need all of the host's migrations? Or does the engine just need the migrations relevant to the files that I'm moving over to the engine?
An engine should be completely independent from its host. It's isolated in code and data, and should be able to drop into any host and work the same way. That means the engine doesn't have any special knowledge of the inner workings of its host, and the host has no special knowledge of the engine's internals.
If your engine depends on a model called Admin, then it should include a migration template for creating an admins table and 100% of the code needed to interact with Admins. The migration template will be copied into the host's db/migrations folder and run alongside its other migrations. Don't add migrations to the engine itself, because it'll have no way of running them once it's inside a host. Remember: the engine cannot know anything internal to the host, including its database schema.
I strongly recommend you create and maintain this separation. It'll save you huge headaches in the future.
Within the engine, you need to include all dependencies and code for the engine alone. Do not add dependencies or code required for the host, because the engine isn't allowed to know about them.
This is harder than it sounds, but there are great examples of engines you can follow. Check out RailsAdmin and Devise for high-quality samples of code organization, data management, and testing.
Testing is important. In order for your engine to actually display pages or interact, you may need to include dependencies like Rails. You can do that, but make sure you add them as development dependencies to your Gemfile. See the above projects for examples of how to do this.
I recommend you build your engine outside your host project, because it'll force you to write tests that don't rely on the host app. If your engine is testable and works well on its own, it'll work great when you drop it into your host too.