How to configure the database.yml file is using PostgreSQL if using Publify on Heroku?

I am following along to the tutorial at http://fdv.github.io/publify/#publifydemo but all it says is

1. Rename database.yml.yourEngine as database.yml
2. Edit database.yml to add your database name, login and password.

So I renamed database.postgresql.yml to just database.yml And as far as adding a login and password, I did, here is the file

login: &login
  adapter: postgresql
  host: localhost
  username: troll

development:
  encoding: unicode
  database: typo_dev
  username: troll
  password: lol
  host: localhost:3000

test:
  encoding: unicode
  database: typo_dev
  username: troll
  password: lol
  host: localhost:3000

production:
  database: typo
  username: troll
  password: lol
  host: <hostname or ip address. eg.: localhost>

Not really sure where to go from here. I did search the documentation for PostgreSQL but not sure where to get started in the 2808 pages of the manual.

I did run into this question How to configure Postgresql with rails project? but it did still not run locally

This is the log when I run rails server

jgallardo:bruxir-typo juan.gallardo$ rails server
/Users/juan.gallardo/.rvm/rubies/ruby-2.0.0-p195/lib/ruby/2.0.0/psych.rb:205:in `parse': (<unknown>): found character that cannot start any token while scanning for the next token at line 2 column 3 (Psych::SyntaxError)
from /Users/juan.gallardo/.rvm/rubies/ruby-2.0.0-p195/lib/ruby/2.0.0/psych.rb:205:in `parse_stream'
from /Users/juan.gallardo/.rvm/rubies/ruby-2.0.0-p195/lib/ruby/2.0.0/psych.rb:153:in `parse'
from /Users/juan.gallardo/.rvm/rubies/ruby-2.0.0-p195/lib/ruby/2.0.0/psych.rb:129:in `load'
from /Users/juan.gallardo/Desktop/myfiles/test-projects/typo/bruxir-typo/Gemfile:7:in `eval_gemfile'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/bundler-1.3.5/lib/bundler/dsl.rb:30:in `instance_eval'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/bundler-1.3.5/lib/bundler/dsl.rb:30:in `eval_gemfile'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/bundler-1.3.5/lib/bundler/dsl.rb:9:in `evaluate'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/bundler-1.3.5/lib/bundler/definition.rb:19:in `build'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/bundler-1.3.5/lib/bundler.rb:148:in `definition'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/bundler-1.3.5/lib/bundler.rb:136:in `load'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/bundler-unload-1.0.1/lib/bundler-unload.rb:42:in `with_bundle'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/rubygems-bundler-1.2.2/lib/rubygems-bundler/noexec.rb:53:in `candidate?'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/rubygems-bundler-1.2.2/lib/rubygems-bundler/noexec.rb:70:in `setup'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/gems/rubygems-bundler-1.2.2/lib/rubygems-bundler/noexec.rb:85:in `<top (required)>'
from /Users/juan.gallardo/.rvm/rubies/ruby-2.0.0-p195/lib/ruby/site_ruby/2.0.0/rubygems/core_ext/kernel_require.rb:116:in `require'
from /Users/juan.gallardo/.rvm/rubies/ruby-2.0.0-p195/lib/ruby/site_ruby/2.0.0/rubygems/core_ext/kernel_require.rb:116:in `rescue in require'
from /Users/juan.gallardo/.rvm/rubies/ruby-2.0.0-p195/lib/ruby/site_ruby/2.0.0/rubygems/core_ext/kernel_require.rb:122:in `require'
from /Users/juan.gallardo/.rvm/gems/ruby-2.0.0-p195/bin/ruby_noexec_wrapper:9:in `<main>'