The ship's rail is the railing around the outside of the deck which stops someone walking on deck from falling overboard. The writer has used this form of words to try to explain to an uninitiated reader what FOB means. I think your understanding of a rail is correct, although I would not describe a rail as "a narrow path". The rail is a tangible, physical object likely to be made out of metal or wood. The rail will follow a path - in this context "path" is intangible and describes the route the rail takes, eg along the side of the deck. As an aside you can either say "I thought that ..." or "I used to think that ..."