Not totally clear to me why it’s preferable though: Postgres takes up as little as 50mb of memory as a server running on the host machine and offers way more features, with a large ecosystem.

Why jam SQLite in server side environments? Embedded and mobile devices I can see a case for

I agree. I think the reason why Rails (and Laravel) set the default to SQLite is that it makes it easier for newcomers to start. No install needed of MySQL/Postgres.

The problem with making this the default is that people then think it is the recommended way, even if it is not. It is the easiest way to fast get something up and running locally, but it is typically not the best for a production setup. Experienced users will know this, but for beginners to these frameworks, it leads them in the wrong direction.