MATLAB Rayleigh fading and white gaussian noise
The Rayleigh fading channel equation you provided comes from the property that given two independent zero-mean Gaussian random variables with equal variance $X \sim N(0,\sigma^2)$ and $Y \sim N(0,\sigma^2)$, the random variable $R = \sqrt{X^2+Y^2}$ is Rayleigh distributed (see for example wikipedia). In the code you provided, the real and imaginary components (generated by independent calls to randn) generally meet this condition (or at least approximates it quite well for reasonable pseudo-random generator) and the magnitude of h would thus have a Rayleigh distribution.

In addition, it is generally assumed that the signals' power is preserved on average, that is $E\{R^2\} = 1$. Now given how we defined $R$:
$$
\begin{align}
  E\{R^2\} &amp;= E\{X^2+Y^2\} \\
           &amp;= E\{X^2\}+E\{Y^2\} &amp;\mbox{(linearity of expectation)} \\
           &amp;= 2E\{X^2\} &amp;\mbox{($X$ and $Y$ identically distributed)} \\
           &amp;= 2\sigma^2 &amp;\mbox{($X$ and $Y$ zero-mean Gaussian)}
\end{align}
$$

So the signal power is preserved on average when $\sigma = 1/\sqrt{2}$. This is also the scaling factor that must be used if starting with unit variance Gaussian pseudo-random variables (as is the case with MATLAB's randn).

Similarly, given a complex-valued Gaussian noise $n$ defined as $n = n_{\scriptsize \mbox{real}} + i\cdot n_{\scriptsize \mbox{imag}}$, where both real and imaginary components are Gaussian distributed with variance $\sigma_n^2$, the noise power is
$E\{|n|^2\} = E\{n_{\scriptsize \mbox{real}}^2 + n_{\scriptsize \mbox{imag}}^2\}$. By a similar argument as above, it follows that $E\{|n|^2\} = 2\sigma_n^2$. To obtain noise with unitary power, we thus need $\sigma_n = 1/\sqrt{2}$.

Note that the notion of unitary power only makes sense once a measurement unit has been established. Quite often the noise power is defined relative to the signal power. In that case, a noise power of 1 (or 0dB) in signal power's units would mean that the power of the noise is the same as that of the signal.